What kind of hook was it? What weight of leder were you using. This sounds unusual, to say the least. I have rarely had a hook straighten on me in 30+ years of fly and gear fishing, and then only with very small hooks. Any reputable steelhead fly hook should require at least 25 lbs of pull to straighten for the sizes normally used (size 8 to 2). If you were using a lower strength tippet than that, you probably had a defective hook, which is a bummer to say the least.

On the drag question, i'm with the other guys. I have a drag set to about 2 or 3 lbs of tension, when I am using 8 to 10 lb test leader. hat equates to being a little more than loose, but not stiff by any means.

Bummer about losing the fish, sounds like it was a nice one.