Basic Set, third edition (revised), page 114, says: "
You may choose to "dodge and retreat" in close combat if the enemy is not holding you. Add 3 to your defense and back out of the hex - that is, leave on your side, moving one hex! If the foe is grappling you, you cannot do this."
It sounds to mean that if the foe is grappling you, you cannot "dodge and retreat", but you can still dodge...
And it makes sense. Even if your arm is grappled, you can still move your body to the left or the right enough to avoid a thrusting blow. A swinging blow seems much more difficult to be avoided. And a blow to the hold arm seems impossible to be avoided...
Actually, if I was a third edition GM*, I would handle things like this:
- dodge allowed
- but with a penalty depending on the attack and the part of the body aimed at.
Remember that the GM may always assess a penalty for a success roll if it fits to the exact situation (no rule system, no matter how well written it is, can anticipate every possible specific case).
Edit: note that it is just my GM's opinion! Nothing in the rules (at least, as far as I know) says that such a penalty is a mandatory!
*I'm now a fourth edition GM.