Again, modifier can get us to the answer in 20 seconds..
the part modified by "Found in the wild only in Australia and New Guinea," has to be Kangaroo..
only D and E are left..
E changes the meaning and uses 'being' unnecessarily..
D
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Found in the wild only in Australia and New Guinea, powerful back legs with long feet distinguish kangaroos from other large mammals.

• powerful back legs with long feet distinguish kangaroos from other large mammals
• powerful back legs with long feet distinguish kangaroos from other mammals that are large
• powerful back legs with long feet distinguish kangaroos from those of other mammals that are large
• kangaroos are distinguished from other large mammals by powerful legs with long feet
• kangaroos are being distinguished from other mammals that are large by powerful legs with

Ask the question what is found in Australia and NG. Obviously not the powerful legs but the Kangaroos. Therefore, after the participial phrase, the kangaroos must come. D and E survive. E is a muddle, forget it. D survives.

Better than second one, because this involves two concepts.

Simple modification issue. D; E changes the meaning, so is out.
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To tackle this type of question, you should begin by asking the fundamental question: who/what is the subject here.

In this case, who/what is found in the wild in Australia? Kangaroos!

Therefore, the subject Kangaroos should come immediately after the comma.

Once we have this down, we can eliminate Option A, B and C.

Now, we can turn our attention to Options D and E.

Option E uses ‘being’. Now, ‘being’ is not always patently wrong on the GMAT. So let’s look at this one:

Here, it’s a passive and awkward construction. The option also introduces ‘that are large’ which alters the intended meaning of the sentence.

Eliminate Option E.

Option D is the best choice.

Hope this helps!
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Although I got to the correct answer because of POE, I would like to know how is the usage of "by" in the fragment " X are distinguished from Y by powerful legs with long feet" correct ?

As far as I know BY is used for following purposes;
1. BY introduces a means or method of particular action, or
2. After a passive verb, "By" introduces the agent of the action.

But i am a bit confused about the role of By in here.

Thanks

if we see a split between progressive tense and other tenses, we have to find out the reason to use progressive.

if the verb is action verb, progressive means that the action is happening at a point of time or in a period of time
when you come, I am eating my meal
if the verb is stative , such as to be, progressive means that the status is short.

"he is being good " means that "he is being good not permanently". it is possible that he normally a bad boy
so, if we use "kangaroos are being distinguished from" , we means the difference last a short time. this is not logical