your example works for me without any changes. "return 42" works as well.
it returns None and there are no errors in the *bug_report* buffer.

I'm using:
GNU Emacs 25.2.2 (x86_64-pc-linux-gnu, GTK+ Version 3.22.21) of 2017-09-22, modified by Debian
Org mode version 9.3.6 (release_9.3.6-739-g0c1740.dirty @ /home/ian/code/elisp/org-mode/lisp/)

On Wed, Jul 1, 2020 at 12:57 PM Philip Blagoveschensky <philip@crabman.me> wrote:
Consider the following org-babel block:



#+begin_src python :session bug_report
def foobar():
     for i in range(5):
         pass
     print "hello world"

foobar()
#+end_src



When I run it, this is what I see in the *bug_report* buffer:



def foobar():
...     for i in range(5):
...         pass
...
>>>     print "hello world"
   File "<stdin>", line 1
     print "hello world"
     ^
IndentationError: unexpected indent

>>> foobar()
>>>
>>> open('/tmp/babel-MOOCF9/python-UW5PEF', 'w').write(str(_))
>>>
>>>
>>> 'org_babel_python_eoe'
>>> 'org_babel_python_eoe'
>>>



So, org-babel incorrectly decided that the line with the print is not a
part of the function's definition and sent it to Python shell as a
separate statement. Instead, it should've sent it as a part of foobar's
definition.

This problem persists
- If I use python3 instead of python2
- If I replace
     print "hello world"
   with
     return 42

This problem disappears if I add :results output to the source block.


Emacs  : GNU Emacs 26.1 (build 2, x86_64-pc-linux-gnu, GTK+ Version 3.24.5)
  of 2019-09-23, modified by Debian
Package: Org mode version 9.3.6 (9.3.6-elpa @
/home/username/.emacs.d/elpa/org-9.3.6/)


current state:
==============
(setq
  org-src-mode-hook '(org-src-babel-configure-edit-buffer
                     org-src-mode-configure-edit-buffer)
  org-link-shell-confirm-function 'yes-or-no-p
  org-metadown-hook '(org-babel-pop-to-session-maybe)
  org-clock-out-hook '(org-clock-remove-empty-clock-drawer)
  org-mode-hook '(#[0 "\300\301\302\303\304$\207"
                   [add-hook change-major-mode-hook org-show-all append
                    local]
                   5]
                 #[0 "\300\301\302\303\304$\207"
                   [add-hook change-major-mode-hook
                    org-babel-show-result-all append local]
                   5]
                 org-babel-result-hide-spec org-babel-hide-all-hashes)
  org-archive-hook '(org-attach-archive-delete-maybe)
  org-confirm-elisp-link-function 'yes-or-no-p
  org-agenda-before-write-hook '(org-agenda-add-entry-text)
  org-metaup-hook '(org-babel-load-in-session-maybe)
  org-bibtex-headline-format-function #[257 "\300 \236A\207" [:title] 3
"\n\n(fn ENTRY)"]
  org-babel-pre-tangle-hook '(save-buffer)
  org-tab-first-hook '(org-babel-hide-result-toggle-maybe
                      org-babel-header-arg-expand)
  org-babel-load-languages '((emacs-lisp . t) (python . t))
  org-occur-hook '(org-first-headline-recenter)
  org-cycle-hook '(org-cycle-hide-archived-subtrees
                  org-cycle-show-empty-lines
                  org-optimize-window-after-visibility-change)
  org-speed-command-hook '(org-speed-command-activate
                          org-babel-speed-command-activate)
  org-babel-tangle-lang-exts '(("python" . "py") ("emacs-lisp" . "el")
                              ("elisp" . "el"))
  org-confirm-shell-link-function 'yes-or-no-p
  org-link-parameters '(("attachment" :follow org-attach-open-link :export
                        org-attach-export-link :complete
                        org-attach-complete-link)
                       ("id" :follow org-id-open)
                       ("eww" :follow eww :store org-eww-store-link)
                       ("rmail" :follow org-rmail-open :store
                        org-rmail-store-link)
                       ("mhe" :follow org-mhe-open :store
                        org-mhe-store-link)
                       ("irc" :follow org-irc-visit :store
                        org-irc-store-link :export org-irc-export)
                       ("info" :follow org-info-open :export
                        org-info-export :store org-info-store-link)
                       ("gnus" :follow org-gnus-open :store
                        org-gnus-store-link)
                       ("docview" :follow org-docview-open :export
                        org-docview-export :store org-docview-store-link)
                       ("bibtex" :follow org-bibtex-open :store
                        org-bibtex-store-link)
                       ("bbdb" :follow org-bbdb-open :export
                        org-bbdb-export :complete org-bbdb-complete-link
                        :store org-bbdb-store-link)
                       ("w3m" :store org-w3m-store-link) ("file+sys")
                       ("file+emacs")
                       ("shell" :follow org-link--open-shell)
                       ("news" :follow
                        #[257 "\301\300\302 Q!\207"
                          ["news" browse-url ":"] 5 "\n\n(fn URL)"]
                        )
                       ("mailto" :follow
                        #[257 "\301\300\302 Q!\207"
                          ["mailto" browse-url ":"] 5 "\n\n(fn URL)"]
                        )
                       ("https" :follow
                        #[257 "\301\300\302 Q!\207"
                          ["https" browse-url ":"] 5 "\n\n(fn URL)"]
                        )
                       ("http" :follow
                        #[257 "\301\300\302 Q!\207"
                          ["http" browse-url ":"] 5 "\n\n(fn URL)"]
                        )
                       ("ftp" :follow
                        #[257 "\301\300\302 Q!\207"
                          ["ftp" browse-url ":"] 5 "\n\n(fn URL)"]
                        )
                       ("help" :follow org-link--open-help)
                       ("file" :complete org-link-complete-file)
                       ("elisp" :follow org-link--open-elisp)
                       ("doi" :follow org-link--open-doi))
  org-link-elisp-confirm-function 'yes-or-no-p
  )