I don't know why it is not working. I have been staring at the code trying to see if there is a bug ...
Aha! Look on the settings page for the "Convert URLs into links and images" filter. There is a setting for when this should be applied. GIFT defaults to "Moodle auto-format". An alternative is to add [html] at the start of the question text in the GIFT file, then Moodle will import the question as HTML format. That second solution is probably the better one.
Note that you have made one of the classic mistakes of setting multiple choice questions. The right answer is much longer than the distractors. Even though I don't know Nevada law, I would have guessed B and been right.
This advice to students http://www.uwec.edu/geography/ivogeler/multiple.htm - see the numbered points after the Answering Multiple Choice Questions heading. Each of those points corresponds to a mistake the teacher can make, and yours is number 6.