Your first problem is, as kwatford explained, that you are returning every time through the loop. You can fix that by moving the if statement outside the while loop.
Your next problem, as Vorticity explained, is that it will never return early, even if the user guesses the whole word. To fix that, move the if part back inside the loop, but leave the else part outside the loop (meaning you no longer need the else)
After that, it still won't work, because you're doing secretLetters = list(secretWord) each time through the loop, so you can only win if you guess all the letters in one guess (which is impossible, unless the word is, say, "a" or "aaaaa"). To fix that, move that line outside the loop.
Putting it all together:
def isWordGuessed(secretWord,lettersGuessed):
guess = 0
secretLetters = list(secretWord)
while guess <= 8:
secretWordLen = len(secretLetters)
letter = input('Enter a letter: ')
lettersGuessed.append(letter)
print('Letters guessed so far: ',lettersGuessed)
if letter not in secretLetters:
guess += 1
while letter in secretLetters:
secretLetters.remove(letter)
if secretLetters == []:
return True
return False
As a side note, there are a lot of things you can do to simplify this.
First, you really just need a set of all letters in the secret word—you don't need to know the order, or how many copies there are of each, etc. So, instead of a list, use a set. This also means you don't need the loop around secretLetters.remove(letter).
More trivially, you create secretWordLen but never use it.
You also accept and append to a lettersGuessed passed in by the caller, but the caller is just passing you an empty list, and never using it after the fact, so why bother? And if you don't need to mutate it for the caller's benefit, you can just keep it as a string, so the user sees help instead of ['h', 'e', 'l', 'p'], which is a lot nicer.
You've also got a few cases that are being tested even when they can't possibly be true.
Finally, an empty list (or set, or any other sequence) is false, so there's no reason to explicitly compare to the empty list.
While I'm at it, I'm going to PEP8-ify the spacing to make it easier to see the indentation.
So:
def isWordGuessed(secretWord):
guess = 0
lettersGuessed = ''
secretLetters = set(secretWord)
while guess <= 8:
letter = input('Enter a letter: ')
lettersGuessed += letter
print('Letters guessed so far:', lettersGuessed)
if letter not in secretLetters:
guess += 1
else:
secretLetters.remove(letter)
if not secretLetters:
return True
return False