The answer lies in the difference between recur and occur. Sleeping recurs. Redecoration occurs. To express the idea that one action recurs while another action occurs, we use the ing-form with the recurring action and the simple tense with the action which occurs.
When it is not used with a future implication ("We're going to the beach this coming weekend"), the BE + -ing form expresses action as
- repetitive or recurrent
- consistent over time
- in progress as we speak
The young child was saying the f-word over and over again, gleefully.repetitive
The engine is running smoothly these days. We switched mechanics. consistent over time
Excuse me, but your nose is bleeding. in progress as we speak
Redecoration is not a single action repeated over and over again, like the child saying the f-word.
And even though redecoration takes some time, we cannot really say that it is consistent, since it is comprised of multiple discrete actions performed seriatim.
Nor are we redecorating even as Dan lies asleep in the living room, snoring away; rather, we redecorate Dan's room by day, which leaves the room in an uninhabitable state so that Dan must sleep on the sofa until we're finished.
If we say Dan is sleeping ... while we are redecorating there is the possible meaning that the two actions are in progress simultaneously, which is not quite the case. They simply occur during the same time-frame. But we could use the ing-form nonetheless, and say while we are redecorating to reinforce the notion that the redecoration is ongoing; most listeners would probably understand that we are not nocturnal redecorators, and they would probably not assume that Dan works the night shift.