From comic artist Mark Tatulli's witty observations about the American

Thanks for inquiry! Hopefully helpful...

This is indeed a great example of an exception to the traditional noun modifier rule. Take a look at the sentence with the correct answer substituted in and the troublesome section in bold:

From comic artist Mark Tatulli's witty observations about the American obsession with all things Hollywood has emerged Heart of the City, a series centered on celebrity gossip and popular movies that is inspiring readers to send record volumes of fan mail to newspapers across the country.

At a glance it looks like phrase "that is inspiring" could modify the plural noun "movies," were we to change "is" to "are." The GMAT takes advantage of this confusion by giving you answer choices with the plural verb "are" and the plural present tense "inspire" for choice E. However if we keep reading after "inspiring" and consider the logic of the sentence, we can see that the phrase "that is inspiring" could not modify the noun "movies" without making an absurd sentence. Ask yourself what the focus of the sentence is. What is it that is inspiring readers to send record volumes of fan mail to newspapers across the country? Of course it is the series "Heart of the City," thoroughly described in this sentence as being from Mark Tatulli's witty observations and being centered on celebrity gossip, etc. etc.

If the "that is inspiring" phrase pertained to the noun "movies," you would have a laughable result. The sentence would say in effect, "Here is this series 'Heart of Darkness'. It comes from this witty comic artist, and it is focused on two things: celebrity gossip and a very specific sort of movies, movies that are inspiring readers to send record volumes of fan mail to newspapers (not magazines!) across the country, to be exact." Unless you are under the impression that the GMAT is written by sociopaths, you can rule out the possibility of such an interpretation. Take a minute, step back, and consider what the sentence is actually saying - what is the subject and what is it doing. Doing so will allow you to avoid this sort of confusion.

On a final note: Even if you are confused about the phrase around the verb "inspire," you can still rule out answer choices A, D, and E here since they all contain the first subject-verb agreement error with "have emerged."'

Cheers,
Josh@knewton