Hi Pazoki,
You have to be very careful about removing a variable by division; doing so might remove a potential solution or fundamentally change the question that is asked. In this case, if you 'divide out an X', then you eliminate the possible outcome that X could be 0 (and in that case, the answer to the question would be YES).
You can TEST VALUES to answer this question.
We're asked if XY = X^2. This is a YES/NO question.
1) Y^2 - XY = 0
IF...
X = 0
Y = 0
Then the answer to the question is YES.
IF...
X = 1
Y = 0
Then the answer to the question is NO.
Fact 1 is INSUFFICIENT.
2) X^2 - 2XY + Y^2 = 0
This Fact can be rewritten as...
(X - Y)(X - Y) = 0
The only way for (X - Y) to equal 0 is when X = Y. Regardless of what values you use for X and Y (try TESTing a few), you'll end up with a YES answer to the given question.
Fact 2 is SUFFICIENT.
Final Answer: B
GMAT assassins aren't born, they're made,
Rich