If he had been standing near the house when the wall collapsed, it would have killed him.
If he had stood near the house when the wall collapsed, it would have killed him.
Does the second sentence sound jarring, or it is fully legitimate? Do I alway have to put one clause in the continious aspect when one event interrupts another?
The past perfect of to stand is had stood rather than had stand, so editing your second sentence slightly to account for that we get:
If he had stood near the house when the wall collapsed, it would have killed him.
And as you suspected, this does sound a little jarring. Past perfect [had verbed] should be used to describe actions which were already complete when another action in the past occurred. [If he had moved closer to the building before it collapsed, he would have been killed.] In this example the moving was a completed action before the wall fell.
Thus the correct usage would be the first example you listed, in the past perfect continuous.
If he had been standing near the house when the wall collapsed, it would have killed him.
It is, however, not uncommon to hear the past continuous used in conditionals even when referring to a past condition. This is somewhat less common with the simple past, but again not unheard of.
To elaborate a bit on some parts of Emmabee's answer: the reason that your second example sounds a bit off rather than entirely incorrect is because the verb "stand" can imply either a state of being or an action, and in this case the default sense is a state of being. For example, this sounds fine:
If he had stood when the tornado passed over the ditch in which he was lying, it would have killed him.
In this case it's clear that stand implies a change of position. We often clarify this meaning by adding "up": "If he had stood up" and so on.
