Answer E
Let’s follow the cascade of inferences and scenarios that occur if you put M in 2.
1) M in 2 means M is also in 7 (Rule #2).
2) Rule #3 means that O cannot go into 1,3,6, and 8.
3) If O can’t go in 1 that means O can’t go in 5 either (Rule#1).
4) There’s only space left for O, space 4.
5) We look at the answer choices and see E, choose it and move on.