A recursive divide and conquer algorithm runs for input size $N$ in $T(N)$ time where
$$ \begin{align} T(1)&={\cal O}(1) \\ T(N)&={\cal O}(1)+2T(N/2)+{\cal O}(N) \\ \end{align} $$
This should be $T(N)={\cal O}(N\log N)$. I tried the following to solve it:
$$ \begin{align} T(N)&={\cal O}(1)+2T(\frac N2)+{\cal O}(N) \\ &={\cal O}(1)+2\big( {\cal O}(1)+2T(\frac N4)+{\cal O}(N/2)\big) +{\cal O}(N) \\ &={\cal O}(1)+2\Big( {\cal O}(1)+2\big({\cal O}(1)+2T(\frac N8)+{\cal O}(N/4)\big)+{\cal O}(N/2)\Big) +{\cal O}(N) \\ &=(4+2+1){\cal O}(1)+8T(\frac N8)+4{\cal O}(\frac N4)+2{\cal O}(\frac N2)+{\cal O}(N) \\ \text {after }i \text{ times} \\ &= (2^i-1){\cal O}(1)+2^iT(\frac N{2^i})+2^{i-1}{\cal O}(\frac N{2^{i-1}})+2^{i-2}{\cal O}(\frac N{2^{i-2}})+\ldots+2{\cal O}(\frac N2)+{\cal O}(N) \\ \text{use }i=\log_2N \\ &=(N-1){\cal O}(1)+N{\cal O}(1)+\frac N2{\cal O}(2)+\frac N4{\cal O}(4)+\ldots+2{\cal O}(\frac N2)+{\cal O}(N) \end{align} $$
Now the first two summands are obviously ${\cal O}(N)$, but I’m at loss for the remaining summands.
How do I lead the remaining summands into ${\cal O}(N \log N)$? And did I make a mistake somewhere?
Unfortunately, you're being too loose. Because the number of terms in the sum (where I've fixed the errors in your substitution)
$$\frac{N}{1} \mathcal{O}(1) + \frac{N}{2} \mathcal{O}(2) + \frac{N}{4} \mathcal{O}(4) + \cdots + 1 \mathcal{O}(N) $$
is not constant but depends on $N$, the sum could turn out to be anything at all if the hidden constants behave sufficiently pathologically.
You really should translate the problem out of big-oh notation to do the analysis, and then back into big-oh notation at the end.