A. As I watched, I realized he was strong as an ox.
B. When I saw him, he was sitting by Sally.
The past continuous describes actions or events in a time before now, which began in the past and was still going on at the time of speaking. In other words, it expresses an unfinished or incomplete action in the past.
It is used:
often to describe the background in a story written in the past tense, e.g. "The sun was shining and the birds were singing as the elephant came out of the jungle. The other animals were relaxing in the shade of the trees, but the elephant moved very quickly."
to describe an unfinished action that was interrupted by another event or action: "I was having a beautiful dream when the alarm clock rang."
When she first got there, she had expected five-star treatment since she was a move star. Instead, she'd been treated as if she were no one special. Now, she realized they had given her special treatment--they'd treated her as if she were family.
When she first got there (simple past tense since she's still there), she had expected five star treatment (past perfect tense, the action had already occurred) since she was a movie star (and she still is--simple past tense). Instead, she'd been treated (past perfect) as if she were no one special (subjunctive tense--describing a condition that isn't true). Now, she realized (story present, which is written in past tense) they had given her special treatment (past perfect, the action had already occurred)--they'd treated her (past perfect) as if she were family (subjunctive).Quick note on the subjunctive tense: it's used to describe a hypothetical--a condition that isn't true or event that didn't happen. It often sounds odd to the ear, so it's frequently omitted as a verb tense. For instance, "If I was president, I'd give everyone a tax break" should be "If I were president..." (but I'm not). "I don't know what I would've done if he escaped" should be "...what I would've done if he had escaped" (he didn't).
I believe this verb tense has been on everybody's hit list since we first learned it in grammar school. We rarely use it in writing, much less in speech where proper grammar is all but dead anyway. Which is why, when such sentences are found in dialogue, I don't mark them. Dialogue generally reflects the way we talk. I'm not so generous in the text, though. It doesn't hurt to use proper grammar--wait. I'd better quit here. I'll get on a soapbox, and you'll never hear the end of it . . .
(For more on the subjunctive, see "6 Forms of the Subjunctive Mood," by Mark Nichol on DailyWritingTips.)