The assignment does not ask you to find the $n$th derivative, but to prove that $$(1-x^2)y_{n+1} - 2(\gamma + nx) y_n -n(n-1)y_{n-1} = 0.$$
You have shown that $$y_1 = \frac{\gamma y}{1+x} + \frac{\gamma y}{1-x} = \frac{2\gamma y}{1-x^2}.$$ Write that as $$(1-x^2)y_1 - 2\gamma y = 0.$$ Differentiate, to get $$(1-x^2)y_2 - 2xy_1 - 2\gamma y_1 = 0.$$ Now use that as the base case for a proof by induction.
I'm reviewing Meirovitch's "Methods of Analytical Dynamics," and I don't understand the commutation of the derivative from r to dr:
$$
\mathbf{F} \cdot d\mathbf{r} = m \ddot{\mathbf{r}} \cdot d\mathbf{r} = m\mathbf{\dot{r}} \cdot d\mathbf{\dot{r}}
$$