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The arm sounds like a compression release. It makes it easier to pull start by lowering the compression when pulling the starting rope.
If it is stuck, you may not have enough compression to start it.
I have had a Honda that lost the teeth off of the spark advance. It had the same symptoms. It had spark, just not at near TDC. Open the point cover and see if the advance mechanism is moving correctly. It should be on the left side I believe.
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Back button again, I must be getting old.
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