I am trying to derive a bijection between $S^1\setminus\{(0,1)\}$ and the real line, but I am stuck on using the most obvious way
Let the top point of the circle be $(0,1)$, and the blue line hits some point $x = \begin{bmatrix} w \\h \end{bmatrix}$ on the circle and touches the real line at $f(x)$
Find a bijection between $S^1\setminus\{(0,1)\}$ and $\mathbb{R}$
Let $c$ be the length of the blue line, then by Pythagorean
$1^2+f(x)^2 = c^2$
The hypothenus of the small triangle $I$ is given by
$(f(x)-w)^2 + h^2 = c_1^2$
And the hypothenus of the small triangle $II$ is given by
$(1-h)^2 + w^2 = c_2^2$
$c = c_1 + c_2$
It seems proceeding this way I will have
$1+f^2(x) = (\sqrt{(f(x)-w)^2 + h^2} + \sqrt{(1-h)^2 + w^2})^2$
But I need to some how extract the $f(x)$ from the RHS...
Does anyone see how to proceed?

This is actually the right idea! It also generalizes nicely. Typically, this is called the Stereographic projection, and you can find proofs for the fact that it is a homeomorphism from any of the following sites:
http://www.math.ku.dk/~moller/e02/3gt/opg/S29.pdf (Lemma 2, which is a proof of a fact given by munkres ch. 29)
http://www.math.colostate.edu/~renzo/teaching/Topology10/Notes.pdf (example 1.8.5)
Theorem 59.3 in Munkres also proves that the stereographic projection is a homeomorphism.
It might help to define your map differently:
Let $f: S^1 \to \mathbb{R}$ be defined by $$f(x,y)=\frac{1}{1-y}(x)$$
Notice that this is really just an easier characterization of a "straight line" through some $(x_1,y_1) \in S^1-\{0,1\}$. For example ,we know the slope of the line, it's obvious: $\frac{1-y_1}{-x_1}$, and the $y-intercept$ is $1$, so we have a line $y=\frac{1-y_1}{-x_1}x+1$, but we want it to intersect the $x-axis$, so we set $y=0$ and then obtain that $x=\frac{x_1}{1-y_1}$, which is exactly our map.
More generally: $$f(x_1,...,x_{n+1})=\frac{1}{1-x_{n+1}}(x_1,...x_n)$$ gives a stereographic projection.
This should be a much easier function to prove is a homeomorphism, but the idea is exactly the same.