**Core Concept**
Diabetic nephropathy is a microvascular complication of diabetes mellitus characterized by damage to the glomeruli and renal capillaries, leading to impaired renal function. The clinical manifestations of diabetic nephropathy include proteinuria, hypertension, and renal failure.

**Why the Correct Answer is Right**
The presence of cotton wool spots on the retina and decreased peripheral sensations suggests diabetic retinopathy and diabetic neuropathy, respectively. The increased urine output is a compensatory mechanism due to the decreased renal efficiency. Diabetic nephropathy is a common cause of chronic kidney disease, and the renal biopsy would likely show nodular glomerulosclerosis, also known as Kimmelstiel-Wilson nodules.

**Why Each Wrong Option is Incorrect**
**Option A:** Focal segmental glomerulosclerosis (FSGS) is a cause of nephrotic syndrome, but it is not typically associated with the systemic manifestations of diabetes.
**Option B:** Membranous nephropathy is a cause of nephrotic syndrome, but it is not typically associated with the systemic manifestations of diabetes.
**Option C:** Rapidly progressive glomerulonephritis (RPGN) is a cause of acute kidney injury, but it is not typically associated with the systemic manifestations of diabetes.

**Clinical Pearl / High-Yield Fact**
Diabetic nephropathy is a leading cause of end-stage renal disease, and early detection and management of diabetes can prevent or delay the onset of nephropathy.

**Correct Answer:** C. Nodular glomerulosclerosis (Kimmelstiel-Wilson nodules).