It is unclear to me why #2 is an incorrect response.
Make sure you quote the sentence in question when referring to incorrect multiple choice options, then it's easier to have a meaningful discussion about it. :)
What is the difference using dere or du?
"Dere" is the form you use for multiple people.
Why not avisa?
I have seen some Norwegians from the middle section of Norway say it this way and I think it should seriously be accepted. "Du leser aviser?" Why is this never accepted as one of the many dialects of Norway. FIX IT NOW PLEASE.