Is this an example of past progressive (was thinking)?

[randy]

Test No. incompl/inter-88 "Simple Present (5)", question 5

As he says, 'I know what everyone was ..........

(a) dreaming
(b) thinking
(c) supposing
(d) believing

Test No. incompl/inter-88 "Simple Present (5)", answer 5

As he says, 'I know what everyone was thinking.

Correct answer: (b) thinking
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Why is that so?

[Alan]

In the story and in this context it means he knew what people's thoughts were at the wedding ceremony about how they thought he would behave.
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English as a Second Language
You can read my ESL story Conditionals