Translation:When I was closing the window, I saw you on the street.
Both "in" and "on" are accepted, and have been for at least two years. Please keep in mind that most exercises have a lot of acceptable translations, only one of which can be shown at the top of the page. Generally, that is the one closest to the Czech sentence (unless that would be really strange...), and often the "AmE" version, since Duo is US-based. The team makes a very sincere effort to include BrE alternatives.
In commonly spoken English one can equally say in this particular context, and meaning the same, "When I closed the window, I saw you on the street." Even though the second action takes place during the first, and the grammar books may well say it is incorrect (I have not looked). But am I correct to assume that Czech will not accept this or do Czechs break the "rules" just the same?
když jsem zavřel = once the closing reached completion
když jsem zavíral = during the process of closing
no room for debate there.
as for your claim that it may not matter whether "when he was doing it" or "when he did it", that probably depends on the nature of the doing verb. the more result-oriented, whatever we may technically call it, the more it seems to call for the distinction to be made (the narrower the preterit). for example, when he died.../when he was dying... tend to not be used the same if continuing ...he asked for his son. i am aware of the famous potential counter-example in "I heard a fly buzz--when I died". but she may have meant the precise moment of death.
reading about english grammar in Quirk can be eye-opening even for the natives, and possibly useful for tackling languages like czech.
I'm not claiming "it may not matter", I'm commenting on the fact that English speakers tend not to make such a fine distinction between continuous and finite past events (whatever the grammar books may say). "It was raining while I was doing the washing" is just as likely to be expressed as "It rained while I did the washing", or even mixing one verb in the perfective and one in the continuous. All expressing exactly the same fact. I do appreciate by the way that when I am translating into Czech I have to be more particular!
The verbal aspect in Czech (perfective vs. imperfective) is a different concept than a) simple vs. continuous and b) simple vs. perfect in English.
There are situations where it makes little difference (nuance) which aspect we use, and both might be correct in terms of grammar as well as semantics. Then there are situations where one aspect has a very different meaning/use than the other. And then there are situations where one of them makes no sense and only the other one can be used. So whether Czech is more precise/particular about tense/aspect use than English is not a simple question - it depends on the situation and in the same situation Czech may be loose (use whatever you like) and English strict, or vice versa.
Because we don't support switching of the clauses. If the order is "A when B" in one language, please follow the same order in the target language. It's not that the reversed order is any worse, it's just that supporting this would require too many alternative accepted answers throughout the course. EDIT: I replied at the same time as VladaFu, so now you have the same explanation twice - more proof it's true! :-D