Supposing that $|x-x_0| < min(1, \frac{\epsilon}{2(|y_0|+1)})$ and $|y-y_0| < \frac{\epsilon}{2(|x_0|+1)}$ it follows that $|{xy-x_0y_0}| < \epsilon$
(A friend told me it was helpful to prove this in hopes of proving that $\lim_{x \to c}(f*g)=L*M$ where $\lim_{x \to c}f(x) = L$ and $\lim_{x \to c}g(x) = M$)
I think it's supposed to end something like $|{xy-x_0y_0}| <|x-x_0||y-y_0|<(2(|x_0|+1))*\frac{\epsilon}{2(|x_0|+1)}<\epsilon$ and you're finished, but I get stuck in the steps before.