Jim sent us his solution:
I made the substitution $xy(x^2 - y^2) = x^2 + y^2$ that was given
in the hint. This gave:
$$r^4\cos \theta \sin \theta (\cos^2\theta-\sin^2\theta)= r^2$$
I then subsituted the double angle formulae:
$$\cos2\theta=\cos^2\theta-\sin^2\theta$$ and $$\sin
2\theta=2\sin\theta\cos\theta$$
to get $r^4\sin4\theta=4r^2$
Next, I looked for points distance $2$ from the origin. So $r=2$.
This meant that $sin 4\theta=1$, and sosince$\theta$ must be
between $0$ and $360$ degrees,it has four solutions: $22.5$
degrees, $112.5$ degrees, $202.5$ degrees and $292.5$ degrees.
I rearranged theformula above to get $\sin4\theta=4/r^2$. Since
there are only solutions to $\sin$ that are no more than $1$, $r$
must be at least $2$. This formula also implies that $\sin4\theta$
is never negative, and so $\theta$ can only only take the values in
the ranges $0$ to $45$ degrees, $90$ to $135$ degrees, $180$ to
$225$ degrees and $270$ to $315$ degrees.
When I made the substitution $y=px$, I got
$x^2=\frac{1+p^2}{p(1-p^2)}$. In order for this line to only cut
the graphat the origin, this must have no solutions. So we need
$x^2< 0$. This meant that $1< p^2$, and so $|p|> 1$
For the next part, I just substituted in the different
co-ordinates, and found they satisfy the same equation as $(a,b)$
do, and so must be also on the graph.
Finally, I noticed that from the previous observation, that the
graph has rotational symmetry about the origin,with an angle of
$90$ degrees. I used this to sketch the graph, which I used a
computer to confirm: