Does Chen's work pose a problem for ToE?

the fossil record is one of increasing diversity over time

Today, paleontologists still lack viable ancestors for the Cambrian's 40 or more animal phyla. Most researchers explain this by assuming that Precambrian animals were simply too small or too soft to leave a fossil record, or that conditions were unfavorable to fossilization.
But, for the last three years, Chen's discoveries at Precambrian fossil sites with Taiwanese biologist Chia-Wei Li have magnified this mystery. While sifting through the debris of a phosphate mining site, Chen and Li eventually discovered the earliest clear fossils of multicellular animals. They found sponges and tiny sponge embryos by the thousands - but nothing resembling the fish-like Haikouella or forerunners of other Cambrian creatures, such as trilobites.
When word of the discovery got out, Chen and Li suddenly found themselves in the international spotlight. But when the hoopla was over and their discovery established, they wondered what evolutionary problems they had actually solved.
In fact, the pair had failed to find any recognizable body plans showing steps along the way toward the complex Cambrian animals, with their legs, antennae, eyes and other features.
What they had actually proved was that phosphate is fully capable of preserving whatever animals may have lived there in Precambrian times. Because they found sponges and sponge embryos in abundance, researchers are no longer so confident that Precambrian animals were too soft or too small to be preserved.
"I think this is a major mystery in paleontogy," Chen said. "Before the Cambrian, we should see a number of steps - differentiation of cells, differentiation of tissue, of dorsal and ventral, right and left. But we don't have strong evidence for any of these."
Taiwanese biologist Li was also direct: "No evolution theory can explain these kinds of phenomena."

no evolutionary theory can explain this

At any rate, the Cambrian "explosion" may not have been all that "sudden", and only marks the appearance of hard body parts that fossilize (more) easily compared to the soft-bodied precursors.

In fact, the pair had failed to find any recognizable body plans showing steps along the way toward the complex Cambrian animals, with their legs, antennae, eyes and other features.
What they had actually proved was that phosphate is fully capable of preserving whatever animals may have lived there in Precambrian times. Because they found sponges and sponge embryos in abundance, researchers are no longer so confident that Precambrian animals were too soft or too small to be preserved.

Biologist had been expecting to see something that would like a primitive ancestor to the middle Cambrian animal called Pikaia, formerly promoted as the world's earliest chordate. Rather than finding evidence that Pikaia had a less-complex ancestor, Chen instead found a chordate that already displayed many vertebrate characteristics 15 million years earlier.

Taiwanese biologist Li was also direct: "No evolution theory can explain these kinds of phenomena."

“The 580-million-year-old phosphorous rock has good potential to preserve animals, if they exist,” Chen reported to the conferees. “I think this is a major mystery in paleontology, because we didn’t find hard evidence to show that this large number of Cambrian phyla was existing earlier. For me, natural selection is not enough to explain the number of evolution novelties.” More recent evidence for a possible bilaterian animal near the Cambrian/Pre-Cambrian boundary doesn’t solve the problem. Li was also direct: “Evolution should be built on gradual change: mutation plus mutation creating the species, and then the genera and then the family”so how can these animals appear suddenly?”Western scientists would have none of it. “It doesn’t matter if you find it or not!” declared German biologist Dieter Walossek, rallying his Western colleagues around him. “It’s there! It’s by law! All of the major taxa should have been there in the Precambrian, whether proved or not!”Valuing theory over data is giving Western science a bad name in the East. During the same week that Westerners read reports in Science and Nature that stressed the Darwinian lessons to be learned from Chen’s discovery of the earliest chordate, the Communist Party’s Guang Ming Daily gave the Chinese people a different story. “Evolution is facing an extremely harsh challenge,” wrote Chinese reporters in an article, “Darwinism ” Science or Religion?” Using adjectives such as “dogmatic” and “authoritative” to describe America’s neo-Darwinism, the paper suggested that the theory had taken a wrong turn somewhere in the West. : “In the beginning, evolution was advanced as a scientific hypothesis; one that should be under serious scrutiny from all angles.” The article concluded that, because of the need to contend with creationists, scientists became hypersensitive to any dissent from their “immature science,” and “evolution eventually changed into a religion.”Today, as a result of Chinese paleontology, biologists must choose between classic Darwinism and “saltation,” the idea of evolution in quick jumps, says biologist Holland. Chinese gossil discoveries have wrought havoc upon his once-tidy tree of life: “You just hardly know what order to put the material in now. I mean, you might as well just present the phyla alphabetically. It’s come to that.”In China, the Cambrian mystery has recently inspired the building of large new government-sponsored research centers devoted to its investigation. At the heart of their research lies a declaration anathema in the West: a proclamation of the mystery of animal origins on Earth. Rather than “survival of the fittest,” Chen believes scientists should focus on why life kept evolving beyond the fittest. Microbacteria are the most successful forms of life, Chen noted, since they make up most of the Earth’s bio-mass and have survived while all other forms have a way of going extinct. Complex life is less capable of making adaptations. If all we have to depend upon is chance and competition, the conventional forces of evolution, Chen said, “then complex, highly evolved life, such as the human, has no reason to appear.”At the conference, Chinese scientists encouraged the investigation of a variety of new hypotheses to explain the Cambrian explosion: hydrothermal eruptions, sudden seafloor changes, even intelligent design. This last was too much for one American paleontologist, who stood up and shouted, “This is not a scientific conference!”

and only marks the appearance of hard body parts that fossilize (more) easily compared to the soft-bodied precursors.