What you need to configure is polipo/privoxy for tor as your are using http proxy. Tor doesnot use 8118 as its port it uses 9050 and it is a socks proxy. You can use this configuration for polipo to use with tor. Just do:

sudo wget https://gitweb.torproject.org/torbrowser.git/blob_plain/HEAD:/build-scripts/config/polipo.conf -O /etc/polipo/config

sudo service tor stop && sudo service polipo stop

sudo service tor start && sudo service polipo start

tor needs to start before polipo, or else polipo will occupy the 9050 port and tor will start with errors

I am giving much focus here on polipo because tor itself recommends polipo and is installed by default on tor installation. You can use privoxy in place of polipo as well. Most of the tor users recommend using the default socks proxy if the application handles it.

If you want to connect everything through tor you need to set system proxy with System Settings > Network > Network Proxy

And then setup proxy to 127.0.0.1 and port to 8118. Use socks proxy where supported just change port to 9050 and type to socks5.

Optionally, install any browser proxy switch addons, I use chromium with proxyswitchy. Similary choose one for firefox if you use firefox. AFAIK pidgin, xchat, thunderbird support socks5 proxy. I think firefox also supports socks5.

Tor check failed though Vidalia shows green onion