Step 1: Concept
For a circle passing through two points to have the minimum radius, the line segment joining the two points must be the diameter of the circle.
Step 2: Analysis
Using the diameter form of a circle equation $(x-x_1)(x-x_2) + (y-y_1)(y-y_2) = 0$ for points (1, 0) and (0, 1).
Step 3: Evaluation
$(x-1)(x-0) + (y-0)(y-1) = 0 \Rightarrow x^2 - x + y^2 - y = 0$.
Step 4: Conclusion
The equation is $x^2 + y^2 - x - y = 0$.
Final Answer: (b)