Have you ever encountered this opening?

As a faithful Dutch player against d4, I've never seen Qd3 before, followed by g4?!. This, apparently, even has a name! The Von Pretzel Gambit. This guy played it against me on chess.com just now in a 15|10 game and we agreed to a draw in the end. Although it looks dubious I've got to admit it really surprised me a bit and my opponent got a decent position very quickly.

A teamate of mine plays it very often which isn't sayin much since he's just rated in the 700s lol 

I hate it when somebody buggers up my f5 pawn.   I haven't seen that gambit before.   Surely there's a way around it.  g6 and play the thing like a Leningrad system maybe?  

Game Explorer calls it the "Manhattan Gambit"...I'm not sure which term is correct.

Perhaps better than 4. ...gxh3 is ...g3.  It's safer, since although you give back the pawn, you deny White an advantage in development.

Does 7.Rxh7 win a pawn?

7..Nxh7 of course loses the queen.
7..Rxh7 8.Qg6+ Ke7 9.Qxh7

Of course it's late so i probably missed some incredibly obvious move.

oh he ended up playing something similar in the game.

Yeah from both sides.