It is just the Hebrew way of thinking. ;-)
The English sleep at night, during the day, in broad daylight. Just to name a very few. Something can be on time, in time, at the time. A very peculiar understanding of time to say the least.
The Hebrew imagine something to be in a place the same as to be in a time - just an ancient concept of spacetime huh?
Its a pa'el constructed verb. This lesson talks about it: https://www.duolingo.com/skill/he/Verbs%3A-Present1
I said, "We are sleeping tonight," and it was incorrect. If we ARE sleeping, then it must be now, which is to-night. Doesn't 'at night' imply that it is at a time different from when you are speaking it? Otherwise, you wouldn't have to clarify 'We are sleeping' with 'at night.'
I agree that Present Continuous should not be used in such a sentence. But both "we are sleeping" and "we sleep" are possible translations of אנחנו ישנים, because Hebrew has only one present tense, so I am guessing it is also possible, since also a lot of non-native English speakers use this app.
However, on your other point, you are not correct, because בלילה means only "at night". On the other hand, "tonight" would be הלילה. So, it would be:
We sleep at night - אנחנו ישנים בלילה
We are sleeping tonight - אנחנו ישנים הלילה