I came across the following two sentences - which one is correct?

Two sentences with different tenses NEVER convey the same meaning. Sentence 1 is incorrect and sentence 2 is correct.

Sentence 1: She had slept when the phone rang
Two past actions: sleeping and ringing of phone. With the usage of past perfect tense, the author wants to establish the sequence of events: sleeping and ringing of phone.
However, the usage of "when" in the sentence makes the usage of past perfect tense incorrect because as stated the sentence means both actions took place simultaneously. Remember that past perfect tense can be used only when the sequence of two dependent past actions must be clarified.

Sentence 2: She was sleeping when the phone rang
Two past actions: sleeping and ringing of phone. The background action of sleeping was interrupted by a foreground action: ringing of phone. This sentence is correct and is a classic example of past continuous tense.