Z argues that people who believe a course of action to be morally obligatory have the right and the duty to pursue such action, and no one else has any right to stop them from doing so.
C provides an example demonstrating how Z's logic leads to an absurd result when one morally committed person encounters another with opposite aims, and each of them the has both the right and the duty to stop the other's action and no right whatsoever to stop it.
(D) is wrong because the point of the argument is not that the term "moral obligation" is not universally understood or applicable, but rather the principle of moral obligation as expressed by Z is untenable. Both of the parties use the term "moral obligation" consistently.