Translation:Normal people are asleep at that time.
I agree. It's marginal English, but this is a Russian course and I think literal translations should be accepted if they indicate the Russian was correctly understood, and the English is at least comprehensible. BTW, "normal people are sleeping now" is better but still literal.
I think it's not accepted because you have 'now' instead of 'at this/that time'. If you take it as 'at that time', it could be said earlier in the day: "Can I pick you up around midnight?" "Normal people sleep at that time." If they wanted 'now', I think сейчас would be used instead.