Re: Require explanation in past continuity
There are many times when I've heard an Indian English speaker use the -ing form when the simple present or simple past would be used by most other English speakers.
In the first case of your fair, however, you can use either. You watched people for a while -- there was duration. In your second example, you just say "we went" not "we observed" so the simple past would sound more natural to me.
I'm not a teacher, but I write for a living. Please don't ask me about 2nd conditionals, but I'm a safe bet for what reads well in (American) English.