Does FanDuel pay out if a tennis player retires in the first set?
Yes. The rule applies regardless of the point in the match and across all grades of tennis, so a retirement two games in settles like one in the fifth set: the player who advances wins.
What happens to a bet on the player who retired at FanDuel?
It is voided and the stake returned, not settled as a loser. The market pays one side in full and refunds the other, which is worth knowing if you are hedging across books.
Does FanDuel settle a tennis disqualification like a retirement?
Yes. The governing sentence covers "a retirement or disqualification at any time after the match has started", so a defaulted match pays the player who advances. That is the opposite of bet365.
Do FanDuel's tennis rules vary by state?
FanDuel publishes per state and the clause here is the Ohio one. Read the version for the state you are betting in.