What does this mean? Is this another way to say "we are in the kitchen"? Or does this literally mean people are lying down on the kitchen floor?
I personally have nothing against that version (although I don't say it that way), but I don't think that is "officially" correct English.
Strictly speaking, "we are laying" is using the verb "to lay", which is transitive, when the sentence is using "to lie", which is intransitive. In other words, "we are laying" should be followed by a direct object (e.g. "we are laying [down] a carpet", "we are laying sod/turf", "we are laying [down] the stolen bank money (which we just happened to find in our home one day and have no idea how it got there, honest) in front of the police") and "we are lying" should not have a direct object, although it can be followed by something like a preposition to state where you are lying.
However, in my limited experience (native speaker, eastern United States), this distinction seems to me to be stressed less in real-world conversations than in my English classes in school. It also doesn't help that the conjugated forms of the two verbs are so similar and even identical on occasion, e.g. "I lay in bed" (past, "to lie") vs. "I lay it on the bed" (present, "to lay").
Even as a native U.S. English speaker, I've always had problems with lie and lay. What helps me is to remember that "to lay down" means to spread fluffy duck feathers (down) around. The correct way to say it if I'm intending to rest in bed is to say "I lie down". Lay means to put things down, lie means to put myself down.