Always frustrating to get primary purpose questions wrong!
Q asks for primary function of 3rd paragraph, which discusses the underlying assumptions of the Pan-Indian theory. Graf says it's based on the assumption that upon contact, all minority societies will eventually assimilate into majority cultures. However, this assumption does not hold water in this case, as there is no evidence that native American groups are succumbing to the majority culture. (Instead, they're actively protecting their identity against the majority culture!)
So we're looking for an answer that says the assumption behind the Pan-Indian theory is wrong because the assumption does not apply to the native Americans groups. Within the whole passage, this graf is further discrediting the theory.
(E) this is great, criticizes the theory by pointing out it rests upon an assumption for which there is no support. Exactly what we're looking for. Great summation of the third graf.
A) searches for evidence to corroborate the Pan-Indian theory? Nope, it's doing the opposite!
B) demonstrate the incorrectness of the theory by showing the native Americans disagree with the theory: the native Americans do disagree with the theory, but this is not the main reason given in the graf for disregarding the theory. And it's not the main purpose either!
C) The graf does show the basic assumption of the Pan-Indian theory is also seen in other assimilationist theories. But the graf does not explain the origins of the theory, only that it shares a common assumption with other theories. Also, this is not the primary motive of the paragraph within the context of the passage. This graf is discrediting the theory further by showing it has no basis in this situation.
D) Paragraph does not examine other theories to demonstrate the common assumption.