1. Query 1 fails because there are no values provided to INSERT.
2. Query 2 fails because the syntax for SET IDENTITY_INSERT requires a table name.
3. Query 3 succeeds because DEFAULT VALUES instructs SQL Server to insert the identity vale.
4. Query 4 fails because VALUES (DEFAULT) does not work for identity columns.
The answer should have included a reference to INSERT (http://msdn.microsoft.com/en-us/library/aa933206(v=sql.80).aspx) for completeness to explain why 1 and 4 fail while 3 succeeds.
Otherwise, a pretty good question.