Northern Virginia, about 30 miles southwestish of DC. I don't know, maybe I got confused or something, but I could swear I had never heard "man in the moon" before because I was really confused when I first encountered this sentence and it still sounds wrong to me. But I guess if it is a regional thing it's a relatively unique quirk of my area.
The man IN the moon is the face or body you can see from Earth in the patterns sculpting the moon.
The man ON the moon is the guy actually on the moon that you would see from here (even though it's impossible to see him with you naked eyes).
Though, the man in the moon is a right way to say it. Please, moderators, don't correct that sentence, I was able to learn something from it. Moreover it is really interesting when Duolingo has tricky little things like that !
Shouldn't "on the moon" be accepted too? This wikipedia article uses the "on the moon" phrase, for example.