This question seems a little shoddy: if the odds that she wins any given round are the same, then the answer is C; if the odds vary, then the answer is E.
Assuming that Martha's odds of winning any given round are the same (and that there are no ties!) ...
Let w be the odds of Martha winning a given round and (1 - w) be the odds of Martha losing a given round. Statement (1) gives us w * w * w * w * (1-w) = 1/32. This has two real, positive solutions, but the methods for arriving at the second (i.e. the answer that is NOT w = 1/2) are beyond the GMAT. Same issue with Statement (2). Together we have w * w * w * w * (1-w) = 1/32 and w * w * w * w * w * w * (1-w) = 1/128. The only solution is the obvious one: w = 1/2.
Of course, we probably can't assume that the odds are the same each round and that there are no ties, meaning we are out of luck.
This question feels outdated to me: a few years back the GMAC loved superficially "easy" DS probability questions that turned out to be missing certain key components, but I'm not sure they test that much these days.
