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I see this problem a lot with some of the new Toro PowerMax's coming through. Straight out of the box and the interlock doesn't work. The problem is that the lockout nut just won't grip into the lockout cam. All the lube and grease in the world won't solve this. What I've done to fix it is remove the lockout cam and carefully grind off some of the lip. You have the be careful and make it nice and even, and you don't have to grind off a lot. Then re-install it. It should function after that, if not, you'll have to grind off a little bit more. Also, make sure that the shoulder screw that goes through the lockout nut is loose. Tighten it just enough so it makes contact with the nylon in the lock nut.
If you don't have a grinder or you don't feel comfortable doing this, you should take it to an authorized Toro dealer and have them do it.
 
I see this problem a lot with some of the new Toro PowerMax's coming through. Straight out of the box and the interlock doesn't work. The problem is that the lockout nut just won't grip into the lockout cam. All the lube and grease in the world won't solve this. What I've done to fix it is remove the lockout cam and carefully grind off some of the lip. You have the be careful and make it nice and even, and you don't have to grind off a lot. Then re-install it. It should function after that, if not, you'll have to grind off a little bit more. Also, make sure that the shoulder screw that goes through the lockout nut is loose. Tighten it just enough so it makes contact with the nylon in the lock nut.
If you don't have a grinder or you don't feel comfortable doing this, you should take it to an authorized Toro dealer and have them do it.
This is my exact issue too with a Toro 1232. I could not see anything damaged and also concluded that the Lockout Cam is preventing the Lockout Latch from getting close enough to the Handle Lock to properly engage the lock feature. Grinding down the Lockout Cam is the fix. It appears to be a manufacturers defect.
 
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