Sometimes this happens for the reason you found - you didn't turn the center knob back where it belongs after you wind a bobbin, but sometimes, you get the same symptoms even with the center knob turned back into place.
The shaft, the inside of the handwheel and the metal washer under the silver center knob can get so cruddy and stuck with old oil that's turned into a varnish-like yuck that that stuff doesn't function properly any more. Clean all the bare metal with denatured alcohol or acetone on q-tips, wipe all those surfaces with sewing machine oil and put them back together.
After assembly, if you disengage the center knob to wind a bobbin and the needle still goes up and down, remove the center knob, turn the washer 180º and replace the center knob and that should fix it. :)
Have fun - it's a WONDERFUL machine! :)