Eight former Western State Hospital employes, fired from their jobs after publicly revealing incidents of patient abuse, sexual assault and illegalities at the Virginia mental institution in Staunton, today challenged their dismissals in a lawsuit against state officials.

Separately, a state-appointed human rights panel issued a report confirming many of the allegations by the fired workers and other Western State employes but saying that most of the problems had been solved or eased in recent months by the hospital's administration.

The eight employes, fired during the past 10 days, accused Western State Director William Burns and other state mental health officials in their suit of conducting "a campaign of harassment, intimidation, assaults, disciplinary actions and firings" in violation of their First Amendment rights to free speech.

The suit, filed in federal district court in Charlottesville, contends the firings were initiated by Burns, whom the staff members accused of negligence, in retaliation for their exposing conditions at the troubled 1,050-patient institution.

A ninth recently fired employe, John Turner, the former social services director at the nearby DeJarnette Center for mentally disturbed children in Staunton, of which Burns also is director, joined in the suit.

Three of the fired employes also filed criminal assault charges against hospital officials and security officers last week, contending they were physically harassed or struck while working at the hospital or, in one case, while attempting to remove personal papers from the grounds after being fired. The cases are pending in a Staunton court.

Burns and state Department of Mental Health and Mental Retardation spokesman Marion Campbell said they would have no comment on the lawsuit. Burns has said the staff members were fired for engaging in a "conspiracy to disrupt patient care activities" at the hospital and not for speaking publicly.

The workers' allegations, which first appeared in a series of Washington Post articles last May, prompted an investigation by Western State's local human rights committee, a citizens' group appointed by Mental Health Commissioner Leo Kirven, who was named as a defendant into the lawsuit.

The eight employes refused to testify before the committee, which they accused of planning a white-wash of hospital problems, a charge committee members denied. Among the panel's findings released today:

About 175 mental patients remain improperly held as "voluntary patients" although they have never signed admission papers. As a result, the report said, some patients have been denied their right to a court hearing and a lawyer every six months.

Violence and sexual assaults among patients has occurred in two wards, but the report added that the problems had been relieved by staffing changes and said that officials are making "great strides" in resolving it. Still, the report cited a finding last May be a panel of hospital employes on one ward that "the conditions are far worse than we had any reason to suspect . . . [Staff members] have come to accept forced sexual activity on unprotected, newly admitted patients as the norm."

There are 66 mentally retarded patients at the facility who are not mentally ill and who should be in other facilities where they could receive specialized training.

The report also stated that while solitary confinement had in the past been used improperly to punish recalcitrant patients, that practice had stopped and use of solitary confinement has declined dramatically since 1980.

Burns said today he concurred with the committee's report and said it reaffirmed his contention that conditions at the hospital were improving. But Gary Boyd, executive director of the Northern Virginia Mental Health Association, said he was disappointed that the panel put off action on several problem areas raised by the report.

"If they're looking to reassure the public about conditions at Western State, I don't think this will do it," said Boyd.