Grab your starter in your hands- look at it and look at the photo of
@singinwoodwackr 's one- see how his is nice and flat sitting inside the orange surrounds?
As for the blue wire- follow its path- where does it go- what does it do? Does it have any bearing on creating spark- or is it to do with extinguishing it?
As for the hydro locking- it will add resistance- but if the recoil were not binding mechanically, I would hazard a guess the rope would still retract- just somewhat slower.
Could someone have had the pawls off that wheel and fitted them with the springs jammed under not around the shank?