It depends on whether you are using British or American English. Both "The team is playing well" and "The team are playing well" can be considered correct, but their usage might vary based on regional differences in English. In American English, collective nouns like "team" are often treated as singular entities, so "The team is playing well" is more commonly used. In British English, collective nouns can sometimes be treated as plural, especially in informal contexts or when emphasizing the individuals within the group. Hence, "The team are playing well" might be more acceptable or frequently used in British English. Ultimately, the choice between using "is" or "are" depends on the style guide you follow or the variety of English you're using. Both can be considered correct, but the context and your intended audience might influence your choice.

the team IS playing well

I agree with Rob. Both sentences sound right. You can use either of them with ease of mind.