According to the investigations of physiologists and psychologists

According to the investigations of physiologists and psychologists,
nervousness has been found to be not an organic disease but a functional one,
which is a critical distinction,
for an organic disease implies impairment of the tissues of an organ,
while a functional disease indicates only a disruption of its role.

The given sentence uses not X but Y idiom where X and Y must be parallel.
Which incorrectly moidifes a functional one therebey changes the intended meaning.
The finding that Nervousness is not X but Y is a critical condition but Given sentence implies that a functional one is a critical distinction.

B. nervousness, found to be an organic disease rather than a functional one, a critical distinction, because an organic disease implies impairment of an organ’s tissues, while a functional disease indicates only a role disruption

a critical distinciton is a misplaced modifier.
There is no verb for subject and there is confusion regarding even subject(Nervousness or finding).

C. it has been found that nervousness is not an organic disease but rather is a functional one; while a functional disease indicates only a disruption of an organ’s role, an organic disease implies impairment of the tissues, a critical distinction

is after rather is incorrectly used disrupting the parallelism in not X but Y idiom.
Critical distinction is once again misplaced improperly.

D. nervousness has been found to be not an organic disease but a functional one; this distinction is critical, for an organic disease implies impairment of the tissues of the organ, while a functional disease indicates only a disruption of its role
(No error.
Nervousness is the subject.
This distinction correctly refers to finding.)

E. nervousness was found to be not an organic disease but a functional one, a critical distinction, since impairment of the tissues of the organ is implied by an organic disease, while a functional disease indicates only a role disruption

critical distinction is misplaced same as in option C.
Passive construction is used in half sentence while active is followed in the end.