They are both OK, but they are not necessarily saying the same thing. If you say "When I woke up the sun rose and the sky was blue", that means that the sun began rising after you woke up (or to be more specific, the sun started rising from the moment that you woke up). If you say "When I woke up the sun was rising and the sky was blue", then that means the sun was already rising by the time you woke up. This is much more natural sounding; most native speakers would say 'rising' instead of 'rose' in this situation. Both are correct grammatically. Either way, the sky was blue when you woke up, and that's what really matters.

To add on to what Dom said, "When I woke up the sun rose and the sky was blue" makes this into a sequence. You woke up *and then* the sun rose *and then* the sky was blue. The sky wasn't blue until the sun finished rising. "When I woke up the sun was rising and the sky was blue" is saying what was happening at that moment when you woke up. The sun was in the middle of rising - it had started, and hadn't yet finished - and the sky was, at that moment, blue.