1. I was having a bath when the phone rang.
Analysis:
Right. The action of bathing is a long one and the phone ringing was the short action which happened during this time or at the end of this time.
2. Joe crossed the street when the dog was biting him.
Analysis:
Wrong. In this sentence the longer action should be written as 'crossing the street'. The second action is the shorter one, so it should be 'when the dog bit him'.
3. She was reading a magazine while she was waiting for the bus.
Analysis:
Right. These two actions both happened over a long time, and both happened at the same time, so you can use a continuous for both of them.
4. I called the doctor because she was looking very ill.
Analysis:
Right. The person was looking very ill for a longer time than the shorter action of calling the doctor.
5. Petra was knowing what to do about that problem.
Analysis:
Wrong. We do not often use the continuous with words of emotion or understanding like 'know', 'understand' or 'love' and 'hate'.
6. While you were playing I was working hard.
Analysis:
Right. These two actions both happened over a long time, and both happened at the same time, so you can use a continuous for both of them.
7. What was he doing when you arrived?
Analysis:
Right. What he was doing was the longer action which was happening or finished when you arrived.
8. I was breaking my arm when I fell off my bicycle
Analysis:
Wrong. In this sentence both actions are short, so should be written with a simple past tense. 'I broke my arm when I fell off my bicycle'.