2 He spoke good French because he was living in France. he had lived in France.

2. He spoke good French because ...

he was living in France.

This implies that he spoke good French during the period he was living in France. The living in France and speaking French were simultaneous or overlapping.

he had lived in France.

This implies that he spoke good French as a result of having lived in France in the past. The period of living in France was completed before he spoke good French, or the learning happened prior to the speaking.