The "Michael Corleone says hello" line has inspired more debate and speculation on these boards than any topic except maybe the identity of the person leaving the drapes open at the Tahoe assassination attempt.
Danny Aiello has said that he ad-libbed the line,and his explanation makes the most sense. You can definitely search this board and come up with hours of reading as afar as why the line was left in the movie.
As far as the possession that Pentangeli was nailed on, I believe they were referring to narcotics.