This is a great question to apply the overlapping sets formula:
Set1 + Set2 - Both + Neither = Total
We know that the total is 11, but everything else is a mystery. Let's call the number of action movies Set1 and the number of movies more than two hours long Set2.

Statement (1) is insufficient. If all of the action movies are two hours long or shorter, there is no overlap at all between action movies and movies more than two hours long. Thus, "Both" is zero. We can simplify the equation somewhat, but not enough to solve:
Set1 + Set2 + Neither = Total

Statement (2) is also insufficient. This explicitly gives us the number of "Neither," which we can plug into the formula:
Set1 + Set2 - Both + 4 = 11
Still not enough.

Taken together, the statements are still insufficient. We can eliminate two of the four variables, but that still leaves two variables:
Set1 + Set2 + 4 = 11
We're looking for the number of action movies that are two hours long or shorter, which (1) tells us is the same as Set1 (the number of action movies). We don't have enough information to solve for either Set1 or Set2. Choice (E) is correct.