I wanted to chime in with my own explanations as I am trying to sharpen my skills. Thanks!
The reason why the musicology analogy is brought up is fairly bluntly stated in the beginning of the third paragraph: "But, this critics might respond, intellectual authority is only recognized as such
because of institutional consensus.
For example, if a musicologist..."
Thus we might be able to pre-phrase something. Perhaps we could say that the example is brought up to show that
institutional consensus (authority) plays a big part in ultimately assessing
intellectual authority.
(A) This seems wrong for two reasons. First of all, this - as mentioned above - is primarily done in the 1st paragraph. If we did this in the first paragraph, we have little reason to believe that the passage would try to do this again. That would seem highly redundant. In addition, the example doesn't seem to distinguish the two concepts as it does fuse them together. The example basically says that intellectual authority NEEDS institutional authority.
(B) This seems a bit off-base for a few reasons. Firstly, it fails to encompass the larger point that the author was trying to develop. The point was not to show a specific example of something not prevailing in its own time; the point was the show that "intellectual authority is only recognized as such because of institutional consensus. Secondly, the example was purely hypothetical. In other words, this example never actually happened (if a musicologist were to claim...the critics might say...) and yet (B) seems to make the example more concrete, that it actually DID occur.
(C) This is basically the same as (B) and it is wrong for the same reasons.
(D) This is almost verbatim exactly what the author says what the example would do. Perfect!
(E) "Entirely institutional" is off the mark. The point the author is making is that it is NOT entirely institutional but rather a mix of institutional and intellectual. I really like how the previous poster put it - this analogy should be seen in the grand scheme of the main point of the passage.