"Pouvaient-ils" and "pouvait-il" are identical, orally. So both are alternative correct answers.
"How used to be able to live there?" is not a meaningful sentence. "How used they to be able to live there" was marked incorrect. Am I missing something?
Yes, the English construction has to change somewhat; "How used they..." is not a correct English construction. It would have to be changed to "How did they use to be able to live there," (don't know whether that's accepted; it's awkward but technically correct) or, better because more straightforward, "How were they able to live there?".
I've actually always wondered whether "how used they to" or "how did they used to" is more correct. I've always assumed that the latter was the colloquially adopted (but less correct) version while the former was a more correct but very out of date and formal sounding one. Do you have any references to back up your assertion? This would be a great mystery to solve!
I appears that I may have been mistaken, and it may be formally correct (see https://en.wikipedia.org/wiki/English_modal_verbs#Used_to) although "rarely" (ibid. but more like "never" imho) used. The only such phrase constructed without "did" that I ever remember hearing is "[someone] used not to." Regardless, should you wish to be understood in (even rather formal) English conversation, then unless you are a character from another century or galaxy in a Dr. Who episode, it would probably be best to avoid "How used they to..."? imho.
It is less incorrect and more dated. It is not the moderned construction.
You're right, there was a bug in the system. But Evatenn is right, how did they used to be able to live there" is a mouthful, while "how could they live there" is so simple...
But what about how were they able to live there? Would this be considered a correct translation of this sentence?
is this imperfect past tense or conditional present? thanks in advance for the help.
"Ils pouvaient" is past imperfect; the conditional present conjugation is "ils pourraient".
"Est-ce que" should not be used after other interrogative words, except "que" and "qui". Still "où est-ce que" and "quand est-ce que" are tolerated because "où" and "quand" are one syllable only.