(E)    Wrong. An object released from rest near the surface of the earth will accelerate downward at 1 g acceleration. In order to obtain an inertial frame near the surface of the earth, you would have to allow the frame of reference to fall freely with the object released. For example, if you dropped a spaceship from a tall tower, the law of inertia would apply locally to it just like it does to a spaceship orbiting the earth. Of course, the spaceship falling from the tower would not remain an inertial frame very long - only until it hit the ground.
                If you assume that gravity is a real force (like electromagnetism), then you could conclude that the reason objects accelerate when dropped near the surface of the earth is that they are experiencing an unbalanced force (the force of gravity). If that force is balanced (by applying an equal and opposite force to the object), then the law of inertia would apply and the earth frame could be considered inertial. For example, suppose a puck is released at rest on a perfectly horizontal air table at the surface of the earth. The puck would remain at rest for a long time and the earth frame would appear to be inertial. Technically, of course, the earth is not really an inertial frame because it is rotating about its axis, revolving about the sun, and in orbit around the galaxy. But the non-inertial accelerations due to these motions are quite small compared to the other accelerations encountered in everyday life. Therefore, most people while growing up have developed the intuitive notion that the surface of the earth is an inertial frame of reference.