For Release 2 and later, MIPS includes an Insert Bit Field instruction which takes bits starting at the least significant from one register and placing them into the specified range in a second register. Thus your byte insertion could be performed by the following:
// rotating right one byte rather than shift to preserve data
// without using an additional register
ROTR $S0, $S0, 8;
// insert LSbits from $S0 into $S1 starting at bit 16
// with size of 8 bits
INS $S1, $S0, 16, 8;