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Humm actually I answered A, and I'm pretty sure that's how we played it. After reading it I'm inclined to go D as "target a separate enemy unit to that engaged by the rest of its own unit" is pretty clear and it is its own sentance. The next sentance only cements its meaning that target a separate enemy unit is an action you may take in the game. The sentances dealing with Target Priority can be ignored and the rule used as is.

edit: Interestingly enough, what does "engaged" mean in game terms? It is not really defined except in CC. It does not really say outright that you can shoot at another unit, i guess we are reading "engaged" as "shooting at"?