The camera's lens is bad and should be replaced. The part can be purchased off ebay sometimes. Your broken camera can be sold on Ebay for about $75. There's take it apart photos at
http://fastfixit.com/phpbb3/viewtopic.php?f=3&t=2&p=31#p31
or
http://fastfixit.com to view the entire forum.
I have heard forcing the lens can realign it or unbind it, so that it retracts easily, but use as last resort.
chinaman4u, January 2009