OFFICIAL EXPLANATION
That all drug dealers make a fortune selling narcotics seems that it is no more than a popular misconception: Economist Steven Levitt's analysis of the financial records of a Chicago gang showed that most street dealers actually earned less than minimum wage.
(A) That all drug dealers make a fortune selling narcotics seems that it is no more than a popular misconception
Incorrect.
This answer choice is grammatically incorrect and non-idiomatic. The verb + relative clause seems that ... cannot logically follow anything except an it subject, or it creates a grammatical redundancy:
Incorrect: Something seems that it is not right
Incorrect: John seems that he is sad
Correct: It seems that John is sad (It subject)
Correct: John seems to be sad. (John is the subject)
However, in this sentence the subject is (the idea) That all drug dealers make a fortune selling narcotics. (B) The fact that all drug dealers make a fortune selling narcotics seems no more than a popular misconception
Incorrect.
While this answer choice corrects the grammatical mistake in the original question, it is illogical and stylistically flawed.
By adding the word fact the corrected sentence becomes illogical - something that seems to be a misconception cannot also be called a fact. Even if the sentence did make sense, the addition of the fact makes the sentence wordy.(C) It seems to be no more than a popular misconception that all drug dealers make a fortune selling narcotics
This answer choice corrects the original grammatical mistake by adding an it subject before the verb seems and turning the original subject into a relative clause describing misconception.
Note that while this answer choice is stylistically flawed (the words to be can be stated more concisely), it is still the best answer choice.(D) It seems that it is no more than a popular misconception that all drug dealers who sell narcotics make a fortune doing so
Incorrect.
While grammatically correct, this answer choice is stylistically flawed. The phrases that it is, who sell narcotics, and doing so are wordy.
There is an answer choice which conveys the same meaning in a more concise way. Find it.(E) That all drug dealers make a fortune at selling narcotics seems no more than popularly misconceived
Incorrect.
While this answer choice corrects the original grammatical mistake, it introduces a new one. The phrase no more than indicates a comparison, where both items compared should be grammatically parallel. However, the complex subject phrase (the idea) That all drug dealers make a fortune at selling narcotics is compared to the adjective phrase popularly misconceived.