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Rock750
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petrifiedbutstanding
The split is pretty straightforward from the start: generation of MP3 players...........has/have.

Since the subject will be generation and not MP3 players, the verb must be singular. Therefore, it will be has.

This eliminates A, D, and E.

The phrase after the first comma is a modifier to MP3 players.

C- being equipped with multiple gigabytes of memory and having the capability of displaying color video files, has generated a huge cottage industry to satisfy the growing demand for accessories for the players
"being equipped" in this context is incorrect.

B- equipped with multiple gigabytes of memory and capable of displaying color video files, has generated a huge cottage industry to satisfy the growing demand for accessories
This sentence is accurate.

The subject is "exploding popularity" and not "generation"
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Another point to note is the play of word in D.

equipped with multiple gigabytes of memory and with the capacity of displaying color video files, have generated a huge cottage industry to satisfy the growing demand of accessories.

Capacity and capability are two different words. GMAT will try to mess with your brain if you read too fast. So watch out for such usages.
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No need to go too deep. 'Have generated' is SV error. Remove A, D, and E. Between B and C, C is out on the face of it for using the unacceptable 'being' as a modifier. B remains.
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Hello from the GMAT Club VerbalBot!

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