This discussion may contain spoilers!
Don't get me wrong, I love TWD, but Larry as a character always struck me as extremely frustrating, and for reasons that I don't think were intended.
We're introduced to him arguing that a little boy should be thrown outside or have his head smashed in because he might be bitten. He doesn't wait for confirmation of the bite; he immediately starts demanding it and abusing everyone in the room, going out of his way to be as much of a jerk about it as possible. At this point, he will have hopelessly alienated Kenny, Katja, Duck and I would suspect just about anyone else in the room who doesn't approve of pointless child killing or doesn't like being told to 'shut the f*ck up'.
Later in the same episode, he punches Lee in the face and leaves him to be devoured by Walkers, even after Lee risked his life to get him heart medicine. Lee only survives through Kenny's intervention. Note that Larry does this even if Lee sided with him or took no sides in the earlier dispute about Duck. Even if Lee doesn't talk about this, Clementine saw it happen and I suspect Kenny must also have had an inkling.
All of this happens before the group leaves the pharmacy...and all of this to me indicates a man who isn't simply a mean curmudgeon who deep down is a good guy, but a dangerous psychopath who resorts to murder as a first resort, even if the victim is a child. His behavior indicates a man who would, in short order, alienate everyone in the group who isn't Lilly. He's a danger to everyone there and makes little effort to even hide that fact.
So how is this character still with the group after the extended gap between Episode 1 and 2? After his behavior in the pharmacy, I would think everyone in the group except for Lilly would realize just how much of a danger he poses and tell him, basically, to hit the road and find another group before he starts getting people killed. Lilly would have to leave with him, of course, but once a man has attempted to murder another member of the group for seemingly no reason, what other choice is left? No sane group would keep someone like Larry around for long.
But the game doesn't seem to understand just how beyond the pale Larry's behavior has placed him by the end of Episode 1. It instead seems to treat him as just a guy with a grating personality rather than an attempted murderer. I would pretty much say that, after intentionally leaving Lee to be devoured alive and screaming, humble gestures of reconciliation are a thing of the past between Lee and Larry, but Larry (like a true psychopath) seems genuinely outraged when the man he tried to kill doesn't give him food or an axe or whatever else he wants.
That would be fine if it were just him. Aggravatingly enough, though, Lee himself doesn't seem to recognize the seriousness of what Larry tried to do or how drastic a difference that makes in their relationship. All his conversation options suggest Larry is just a big jerk rather than a complete psychopath.
Some of it can be handwaved away as Lee not wanting Larry to expose him, and therefore not mentioning the Larry incident at the pharmacy...but frankly, if faced with the hard choice of having to reveal that I'm a convicted felon to the group or spending months trapped in close quarters with the man who tried to kill me and shows not the least sign of regret for it, who might in fact very well try again at the next big opportunity, I know which one I'd pick in a heartbeat.
TLDR: I think the writers made a mistake and took Larry far past 'jerk' and well into 'psychotic' territory in Episode 1, and it made all the interactions with him in Episode 2 feel very weird.