We're seeing the issue as described above as well, but only on timeouts (for regular failures, it appears to work fine). It's as if a failure due to timeout can never be altered by step retry for any reason. This is how it happens:

1. Build task runs past 30 seconds.
2. QuickBuild terminates process (Timeout = 30).
3. 'Retry Steps' activates using this logic: If specified script evaluates to true:

groovy:

return (step.isFailed() || step.isTimeout() || step.isCancelled());

Retry 3
Interval 1

4. Build task completes successfully within 15 seconds.
5. Build still marked as FAIL.

I was able to reproduce this by creating a variable failCounter, setting it to have a value of fail, and then running the following code as Misc > Execute Script (with timeout to 30, and step retry as specified above):

groovy:
def failCounterVar=vars.getValue('failCounter')
logger.info('DEBUG - failCounter is at '+failCounterVar)

if (failCounterVar.equals('fail')) {
    vars.get('failCounter').setValue('pass',false)
    logger.info('DEBUG - Set failCounter to: '+vars.get('failCounter'))
    logger.info('DEBUG - About to sleep for 31 seconds to timeout the build')
    Thread.sleep(31 * 1000)
}
if (failCounterVar.equals('pass')) {
    logger.info('DEBUG - failCounter is at '+failCounterVar+'. About to sleep and exit successfully')
    Thread.sleep(5 * 1000)
}

Thanks for the detailed information. The step retrying has a bug when step is timed out. Please watch below bug to get notified: