Several things: It could be a broken rope return spring. It could need lubrication. It could have a collection of old grass and leaves inside the housing. The rope may be frayed at a certain spot, which ketches on the innards of the starter housing.
Only a check-up by a LB repairman will tell for sure. It is next to impossible to tell what is wrong.
Rusty J. who doesn't work on lawn boys-.

"I have an old Lawn Boy"

You might come near to get good advice if you told the model C, D, F, E. All LB 2 strokers are old, some are older than others

Walt Conner

This one is called a "Lawn Boy Utility" and was bought new in 1982. I haven't had much trouble with it except for this starter. I've taken the starter assembly out and checked it all over and can't find anything broken, the spring will retract the cord sometimes, but other times the cord will stay out. I can re-wind in on the spool and it's ok for a time or two. I wonder if it's possible that the spring might be too weak? Other than that, the thing is very clean and I lubed it last time I had it apart.

I may have figured it out so I'll post here in case anyone has this happen. I do believe I've been winding the spring too tight and when I pull the rope a few times the spring comes loose at on one end. I tried it looser this time and put it back together and pulled on it a dozen times or so and it retracted each time. I also WD-40d the spring and the gears, now I see how it holds out in the long run. Thanks.