There are two mistakes in #1.
(x + .5)2 [itex]\neq[/itex] x2 + .25
The cancelling you did is incorrect. The only time you can cancel is when the same factor appears in the numerator and denominator. You cancelled terms (things that are added together) rather than factors (things that are multiplied together).
In 2, there is an error when you multiplied (x2 - 1)(x2 + x + 1).