VIII's overall story has problems but it has other elements of it that make up for it. I agree with maybee that the Orphanage twist is hardly the worst plot twist in the series. VIII's biggest problem is that most of it's twists never amount to anything meaningful or are deliberately poorly explained because it's obvious the writer himself doesn't really know what it is. Course I would argue that's a calling card for Nojima's style. If you want to see this twist done well, as has been mentioned already, play Persona 2: Innocent Sin. The foreshadowing is a bit better and unlike VIII, the revelation has ramifications for the story that reach into the second game Eternal Punishment.

I'm still thinking up my list, and actually finding it harder than I'm sure most of you would imagine.