Answer:
(A) Scholars who once thought Native American literature's were solely oral narratives
Explanation:
The question is not the relative pronoun-that-or idiom-either. It's more about modifying oral narratives and how it's combined with its modifier-recorded by.
You can't combine this modifier with its modified noun-narratives-with an and.
A. Scholars who once thought that Native American literature's were just oral narratives = The modified noun sitting right next to its modifier is correctly modified.