Disease, pollution, and overfishing have devastated the bountiful oyst

The given sentence is correct as written. "The residents of" a certain place is the proper idiom. It is also correct to refer to the residents living in the "area" of the Chesapeake Bay, rather than in the Bay itself.

(A) CORRECT. The original sentence is correct as written.

(B) This answer incorrectly implies that the residents are living "in" the Bay itself as well as the area surrounding the Bay. (Note that if we were talking about residents with houseboats or the like, they would be living "on" the Bay, not "in" it.)

(C) This answer implies that the residents reside only in or on the Bay itself rather than near it or around the Bay area; though there may be some residents living on boats, the meaning of the original sentence indicates it was not intended to be limited to those living in or on the Bay. In addition, logic dictates that the residents cannot live "in" the Bay.

(D) "Around the vicinity of" is both redundant and the incorrect idiom; to live in the "vicinity" of a landmark already includes the area "around" that landmark. The correct idiom is "in the vicinity of."

(E) "Living in and around the Chesapeake Bay area" is redundant; living "in" a particular "area" implies living "around" that same area.