Your first sentence:
He was playing the piano with his eyes closed.
... conveys what I suspect is your intended meaning: the subject, with his eyes closed, was playing the piano.
Your second sentence:
He was playing the piano, closing his eyes.
... conveys something different: the subject, while playing the piano, lowered his eyelids.
The first sentence uses the past participle of the verb close as an adjective, indicating that his eyes were closed while he played the piano. The second sentence uses the gerund-participle closing to indicate action—the closing of his eyes—that was in progress as the past action of playing the piano took place.
Most native speakers would describe the piano player just as you have in the first sentence. It's idiomatic English.