Hey TehJay,
I like your description - the way I'd look at this one is that:
1) Like you noticed, "developers" requires "their" as a pronoun, so you're down to D and E
2) The difference between the two is only "had been" vs. "is", so you have to make a decision. The given portion of the sentence uses the past-tense "announced", so it's hard to argue that "had been" is incorrect for an event that precedes "announced"...I just don't think you can find any problem with D.
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Now, let me qualify that...I had written a response almost all the way done before looking back at the sentence, and now I'm pretty convinced you're right. Here's what I had to say (might as well use it, right?):
E, on the other hand, means that "is" is still a problem. So now we have to look at logic...if its obstacle 'IS" a citizens group trying to block the destruction of historic buildings, would the developers still have been able to announce the plans to tear down the old building? It's not likely - and even it that were the case, then the first half of the sentence doesn't really make sense. Why would you report a current problem while announcing a new initiative:
"It is pouring rain. We will hold the parade." --- that doesn't have great context...you'd really need to have a transition like "but" in there to justify having both statements: "it is pouring rain but we will still hold the parade".
In E, the meaning doesn't quite work - if you're going to report about troubles with your plan, you'd need to transition it to make real sense:
Reporting that one of their many obstacles is a protest group, developers NONETHELESS announced plans....
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But actually the sentence does fix that meaning, so I think you're right - they announced "a revision of plans"...not just "plans". So the revision reveals why the announcement was made, and is logical with a current problem with protesters. So I think you're right - I would still pick D because I have a good hunch that whoever wrote it was testing verb tense and I know that the GMAT loves testing the past-perfect, but this question doesn't make a clean requirement for past-perfect over indicative. I suspect that the author was trying to replicate an official problem and just missed that subtle play in logic that the original, official problem had. Without that necessary reason that they'd make this announcement with a problem still ("is") occurring, you'd need to say D and not E. But since that reason is there, D or E really both work. I'd chalk this one up to the difficulty of writing a really good SC question that requires some logical thought. I'll leave my not-quite-perfect description there just to make that point...
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