When using M9-G8 against Wanda +Palpatine, M9-G8 can make the attacker re-roll 1attack die. Does Palpatine modify the die when called a crit before or after M9-G8 during the modify attack dice step?

M9-G8 occurs like a standard die modification, but Emperor Palpatine is used before the roll and modifies as soon as you have rolled and before any other modifications are played.

Thus, Palpatine happens first in almost all cases – the only exceptions being things that trigger directly off the roll (same timing as Palp), like Lightweight Frame and Heavy Laser Cannon, in which case you can choose what to apply first.

And then becuase Palp works first the die cannot be M9'd because the Palp'd die can no longer be modified.

Why does Palp work first? Palp says you must, does not say immediately, so the defender should modify first(M9'-G8) then ate attacker (Palp)

Immediately means nothing, so it would have been the same if it were written in Palp.

Palp's modification resolves first because it says "after rolling", and that is still step 2, not step 3 yet, where the defender does his modifications. Just like C3PO