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Clearing the maze, the stem reduces to :

some political theorists concede.....................

C : Some political theorists....................concede THAT................X : fits the bill perfectly

further A, B : wrong for.......... : comma , THAT

leading to C, my take.
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Some political theorists theorists, in viewing anarchism as the most justifiable position in principle, concede nonetheless with some
form of government, that people typically have a good chance of being safer and better off than
they would be without any government. Nonetheless is superflous. Concede needs a 'that x' to be correct

Some political theorists view anarchism as the most justifiable position, in principle, conceding nonetheless with some form of
government, that people typically have a good chance of being safer and better off than
they would be without any government. View and conceding not parallel

Some political theorists who see anarchism as, in principle, the most justifiable position concede nonetheless that with some
form of government people typically have a good chance of being safer and better off than
they would be without any government. Looks great - some people concede that x is happening. Perfect. Correct

Some political theorists in principle, seeing anarchism as the most justifiable position, yet concede on the contrary that with some
form of government, people typically have a good chance of being safer and better off than
they would be without any government. Seeing and concede not parallel

Some political theorists with which anarchism is in principle the most justifiable position yet concede that, typically, moreover, with
some form of government people have a good chance of being safer and better off than
they would be without any government. Nonsense, 'with which anarchism' doesn't relate at all to political theorists
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Logically, the entire question revolves around the "in principle". So before proceeding further, we have to understand why the author uses "in principle".
The author uses this to give emphasis to the logic that even though theorists consider, in principle, anarchism a justifiable, people will be much safer under some form of government.
in A, "in principle" is modifying justifiable position. That doesn't makes any sense. Moreover the two things that are being compared are not given equal preference.
In B, the same error. "in principle" is modifying "justifiable position".
In D, "some political theorists" are in principle. What does it mean. Do they exist in principle only? Eliminate it.
In E, " anarchism" is in principle. Eliminate it.
C is correct.
Though this question can be done grammatically also, I tried doing it logically because it was a modifier type question.
Hope that helps.
-s
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gmatbull
Some political theorists, in viewing anarchism as the most justifiable position in principle, concede nonetheless
with some form of government, that people typically
have a good chance of being safer and better off than
they would be without any government.

A. theorists, in viewing anarchism as the most justifiable position in principle, concede nonetheless with some form of government, that people typically
that illogically refers to government

B. theorists view anarchism as the most justifiable position, in principle, conceding nonetheless with some form of government, that people typically
conceding illogically modifies the preceding clause. it changes the intended meaning.

C. theorists who see anarchism as, in principle, the most justifiable position concede nonetheless that with some form of government people typically
who see anarchism modifiers theorists
concede now is the verb of theorists and is followed correctly by that

D. theorists in principle, seeing anarchism as the most justifiable position, yet concede on the contrary that with some form of government, people typically
comma+ing modifies clauses, but here no clause is before ing modifier. yet incorrectly introduces a contrast.

E. theorists with which anarchism is in principle the most justifiable position yet concede that, typically, moreover, with some form of government people
with which anarchism is in principle - changes the meaning of the sentence
yet- same error as in d
moreover - redundant
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