Answer: I would contend that the right answer is the E) The student could infer that since the dragon fell, false means "unreliable and weak."
Explanation: Just to elaborate a little on the answer, it can be added that option A should be discarded, since this poem by Edmund Spenser praises Queen Elizabeth I, who is represented by the Faerie Queene, Gloriana, so that negative term couldn't have been linked to her. The passage relates the dragon's fall to earth—not to water—and describes the cruel beast as "a huge rocky clift, whose false foundation waves have washed away." A foundation, by definition, is meant to be sturdy and stable; water should not be able to wash it away. The dragon's foundation, however, was a false foundation, or, in other words, an unreliable and weak foundation, which couldn't prevent him from falling.