The megasquid is a gigantic descendent of squid (probably octopuses, come to think of it), and it walks upright on its eight columnar tentacles. The program does have some comments on how the legs actually work, and these make it clear that the tentacles are properly boneless, as they should be.
btw for the record I hate this twist in EO. I think it is just bad and pointless.
not the fact that the whole world had to rebuild from a cataclysm but the fact that it was OUR Earth. I always hate that twist that connects the fantasy world with the real one. Hated it in FMA, hated it in He-Man, hated it in The Lego Movie (kinda, the universe was more flexible in that one, so it was "ok"). Bleh.