Lord Shiva is called Ashtamurti because He is of eight (ashta) forms (murtis).

Lord Shiva is called Ashtamurti
because He is of eight (ashta)
forms (murtis). The eight forms of
Shiva are:
1. Sharva
2. Bhava 3. Rudra
4. Ugra
5. Bhima
6. Pashupati
7. Ishana
8. Mahadeva Sharva rules over the earth
Bhava rules over the water
Rudra rules over the fire
Ugra rules over the wind
Bhima rules over space
Pashupati rules over the soul Ishana rules over the sun
Mahadeva rules over the moon The earth, water, fire, wind, space,
sun, moon and the Kshetrajna
(knower of the field, i.e. soul) are
the eight manifest forms of Shiva.
This interpretation, per the Shiva
Purana, implies that Shiva is the Knower and the known. The eight forms may also be
viewed as the guardians of the
eight terrestrial directions: Sharva rules over the east
Bhava rules over the northeast
Rudra rules over the north
Ugra rules over the northwest
Bhima rules over the west
Pashupati rules over the southwest
Ishana rules over the south
Mahadeva over the southeast Shiva is the center, and His eight
forms are the eight directions. He
is both the Pervader and the pervaded.