Honestly, I don't think Fritz will help you here because it doesn't really understand the compensation of black's position. The thing is this, in my eyes, you've given a pawn. What do you get for it? 

Keeping in my mind, I play this position with both colors, as black I like h6 over Nd5 for several reasons. I feel my compensation is the awkwardness of white's pieces and future development. So the position after 8. Bd3 h6 9. Ne4 Nd5:


Here I feel the following is black's REAL compensation. What will white do with BOTH bishops (light and dark) b2 for dark? f1 for light? e4 for light? What about the d pawn? But most important of all what about that Knight on e4... here is how I feel h6 has contributed to the position. Black might try a plan like g6 Bg7 f5 where by that knight on e4 is a target as well as awkward. And I don't think white ever wants to trade the knights on d5 because then cxd5 creates a pawn center, pawn storm, space advantage and initiative that I don't think white can ever survive. So really the Knight on d5 stays an attacking piece and might come to f4 later. It basically comes down to this, you don't lose a tempo by playing h6 and it seems like it might contribute to your attack later.

I like 8. Bd3 (I play this line as white and black). However, as black I play 8... h6  9. Ne4 Nd5 with chances for both sides. White usually tries to play b3 Bb2 plan here but I've seen 0-0 Re1 Bf1 d4 (though white rarely has time for this plan and should be worse if he tries it).

I don't play 8... Nd5 but I definitely prefer 9... Bd6 in your game over Qc7 because it develops and keeps my position flexible. To me its not clear quite yet where you want to ultimately put your queen. I don't think I'd go so far as to say you're worse here. 

Yes Markovich I believe the idea was Steinitz's originally. The point was after 8... h6 9. Ne4 he wanted Nxe4? 10. Bxe4 where white is just cleanly better.

In a game at the club last night I played an 1800 scholastic that adopted a strange move to me.  I had the better position then blundered, then he reblundered and I was able to win in mutual time trouble.  I am looking for any help with this line. From both sides of the board.

1.  e4 e5 2. Nf3 Nc6 3. Bc4 Nf6 4. Ng5 d5 5. ed Na5 6. Bb5+ c6 7. dc bc 8. Bd3 Nd5 9. Nf3 Qc7 (already here i think i am going wrong.) 10. 0-0 Nf4 11. Re1 Bd6 12.Nc3 f5 13.  Be2 0-0 14. d3 Nd5 15. Bd2 Nc3  (This embarks on a stupid combination on my part that doesnt work.) 16. Bc3 Nb7 17.l Qd2 Rae8 18. Qg5 Rf6 19. Nh4 Nc5 20. d4 Ne6 (Bad move) 21. Bc4 h6 22. Qh5 e4 23. d5 Nf4 24. dc Be6 25. Be6 Rfe6 26. Qf5 Rf8 27. Qb5? Qf7 28. Rf1 g5 29. Nf5 Qf5 31. Qf5 Rf5.  I ended up winning in the time scramble at the end.