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should we always avoid passive voice?

Not really.... passive voice should not be the basis of elimination in general but can only be used as a last resort when no other grammatical or meaning issues are found.
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The question or/and solution has been revised and edited. Thank you sayantanc2k !!!
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I think this is a high-quality question and I don't agree with the explanation. The original question never mentions that Gates tested the windows i.e. someone tested but it is Gates who combined all three big applications.
We know the doer of action combined but we do not know the doer of the action tested.

Hence, isn't option E changing the meaning of the sentence. I am unable to find any option that conveys the original meaning in grammatically correct manner
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I think this is a high-quality question and I agree with explanation.
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Isn't "it" ambiguous in option E ?
KarishmaB GMATNinja Please help
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Isn't "it" ambiguous in option E ?
KarishmaB GMATNinja Please help

Pronoun ambiguity is a grey area at best.

When A tested B (that clause), he combined in it ...

The sentence talks about what A did when he tested B. There is a dependent clause 'when A tested B that ...' and a main clause 'he combined 3 packages in it (in B).' The that clause (that was scheduled for a mass distribution campaign in the United States in 1995) defines B. It says that we are talking about the Windows operating system that was scheduled for a mass distribution campaign in the United States in 1995. In the main clause too we are talking about the system only then. It logically refers to the system - the object of the dependent clause. It doesn't refer to something inside the defining 'that' clause (the modifier).
Worry about pronoun ambiguity only if you actually get confused while reading - only if you are actually wondering what the author's intent is.
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