Paleontologist Stephen Jay Gould has argued that many

Here 'because' of is preferable over 'due to'.

Typically, when confused on whether to use 'because of' or 'due to', I use the following strategy, which works very well for me.

Both 'because of' and 'due to' have a cause and effect relationship. For e.g
It rained because of too many clouds in the sky.
Here cause : existence of too many clouds
and effect : It rained.

So whenever you have such cause and effect scenario and the choice is whether to use 'due to' or 'because of', look at the effect. In the example that I provided, the effect is it rained. Here the effect is a verb. So 'because of' is more appropriate. 'Due to' is more appropriate for nouns. The same sentence can be rewritten for the usage of 'due to' in the following way:

The rain is due to too many clouds in the sky.
Look carefully, here the effect is 'the rain', which is a noun. So 'due to' must be used.

Ok, now enough of the confusion. In original question, the effect is "(biological traits are) favored". Its a verb, yes, so without saying its going to be "because of". A and B are out.

C is out due to absence of a valid verb in the last clause of the sentence.

D seems to be alright. Lets check E

E is does not use the verb correctly after because of. It uses present participle, when simple present tense must be used analogous to "biological traits are" in the earlier part of the sentence

D is the answer.

Everyone says D, but I don't think D is right.
The idiom is NOT X, BUT Y

Paleontologist Stephen Jay Gould has argued that many biological traits are not the products of natural selection, but simply random by-products of other evolutionary developments.
We do not need "are" here.
C stands