You got it right! (How many lines did you try before this one? 8) The reason this line is in error is division by zero. We start with a=b. This means that a-b=0. Therefore, dividing by a-b is the same as dividing by zero.
Incidentally, I need to thank Ryan Lee Matney (rmatney@post.cis.smu.edu) for pointing out that -b^2 looked like I was squaring a negative number instead of multiplying by -1, which messes up the proof.
Bob Colbert, who is apparently more math-inclined than I (this is not a difficult feat), sent the following, more accurate summary of the problem.
Date: Mon, 04 Mar 96 08:33:54 CST
From: ROBERT COLBERT <COLBERTB@BoysTown.ORG>
Subject: 1 = 2
The division by 0 does cause a problem, but it does not inherintly [sic] make a proof invalid, it only sets limits on a proof. One of the limits for this proof would be that a <> b, which is contradicted in the first line.