Thought it might be a useful idea to have hardware handshake enabled.

In the top file CPU entity:

     -- TTY1 Interfaces
     tty1BR   => uartBR9600,                 --! TTY1 is 9600 Baud
     tty1HS   => uartHShw,                   --! TTY1 uses hardware handshake
     tty1CTS  => TTY1_CTS,                   --! TTY1 CTS (in)
     tty1RTS  => TTY1_RTS,                   --! TTY1 RTS (out)
     tty1RXD  => TTY1_RXD,                   --! TTY1 RXD (to RS-232 interface)
     tty1TXD  => TTY1_TXD,                   --! TTY1 TXD (to RS-232 interface)

From Doug Jones PDP-8 page. "From the beginning, PDP-8 software has generally assumed that textual I/O would be in 7 bit ASCII. Most early PDP-8 systems used teletypes as console terminals; as sold by DEC, these were configured for mark parity, so most older software assumes 7 bit ASCII, upper case only, with the 8th bit set to 1. "

In PuTTY:

Works!