I totally agree with you that it's a weirdly written correct answer. The "all" in (D) is definitely stronger than what Klein is committed to.
Klein would probably think Einstein's theory was worth holding on to if its predictions were at least MOSTLY correct. If we had found 80% of what Einstein predicted, then Klein might think that Einstein's prediction/theory is pretty accurate.
If we had found 99.9% of what Einstein predicted, Klein would probably believe Einstein's prediction/theory is ROCK SOLID!
So it's not really about "all" vs. "not all".
But (D) is still the credited response. It's still the MOST supportable answer because they're fundamentally arguing over whether or not to abandon E's view.
Before I defend LSAT's wording, I just want to remind you (and everyone) that some LSAT questions simply aren't written perfectly and you have to use your judgment about the best answer, i.e. try to think about what the test writers would have considered the credited response.
The way I would defend (D), though, is to point out the difference between "the failure" and "a failure".
If (D) said
a failure to find 100% of what E predicted should make us abandon E's theory, then you would have the crazy extreme idea that's bothering you:
Fail to find 100% --> abandon it
However, by saying
the failure we are referring to a specific failure, not ANY ol' failure.
Which specific failure to find all the matter was discussed?
The one in which we only located 1/10 as much matter as what Einstein had predicted.
So (D), by using the definite article 'the' (rather than the indefinite article 'a') is only referring to this current 10% state of affairs. Thus, it's NOT making the extreme claim from before. It's saying:
Only finding 10% of what was predicted --> abandon theory.
If there's one thing I'm SURE makes all students happy, it's learning that their primary issue with a problem hinges on "the" vs. "a".