The sentence says that the marketing of toys was once prohibited. Logically, it makes much more sense to say that such programs that are now thriving were once prohibited. Thus, it should have been “which were once prohibited” in place of “which was once prohibited”.
Prohibiting a practice (developing programs in conjunction with the marketing of toys) makes more sense than prohibiting the final product (programs developed in conjunction with the marketing of toys)
(A) Incorrect. For the reasons mentioned above.
(B) Incorrect. For the following reasons:
The plural subject “programs” doesn’t agree with the singular verb “is thriving”.
The Noun+Noun modifier “a practice…” modifies “the marketing of toys”, leading to the same error as the first error in the original sentence.
(C) Incorrect. For the following reasons:
The use of “as” is incorrect. The correct construction would be “once prohibited by federal regulations”.
The option says that developing television programs is thriving. Either we should say that television programs are thriving or we should say that the practice of developing television programs is thriving.
(D) Incorrect. “they”, being the subject of a clause, refers to the subject of the preceding clause i.e. “regulations” in this case. Thus, the option means that the regulations are thriving. Clearly, an illogical meaning.
(E) Correct.