It should turn with very little resistance going 1 direction, but it won't free spin like a wheel bearing will.

Did you check both 1-way bearings. The stock MGT dual start has 1 for the pull start and 1 for the shaft start. The one for the shaft start would be the most likely cause if that is what it is.

I thought of a couple other things also. Do you see any oil or fuel being sprayed around the exhaust or engine? Do you run the engine out of fuel and use after run oil?