Agreed. While arguably correct it is not something you would be likely to hear a native English speaker say, and DL rightly aims to promote natural word patterns (even if their actual words are sometimes strange). In Spanish "[item] de [descriptive]" is used to describe the ownership or quality of an item, but in English this normally best translates to "[descriptive] [item]." Eg. "zapato de Bob" = "Bob's shoe" or "plato de madera" = "wooden plate" and "teléfono de bajo costo" = "low-cost phone."
That should be Ok, but keep in mind that while there is rarely a "correct" order for adjectives in English, their placement can alter meaning. For example, if the phone was newly in stock or newly purchased we would tend to say "the new low cost phone" but if the phone was brand-new or newly made we would tend to say "the low cost new phone." In Spanish a meaning change with the placement of "nuevo" also exists, but according to this http://spanish.about.com/od/adjectives/a/adjective_placement.htm only if the phone is newly made. If that were the case "nuevo" would move to after the noun. However, "nuevo" would remain in the same place as in the DL sentence if the phone is brand-new, which matches with what your sentence is suggesting.
For mine, there was no hyphen tha I could have chosen. Three words for before telephone are too wordy for an English sentence in the US academa. The sentence should be connected with "of," I learned although there was no "of" to choose, either. But I am not a native English speaker even though I am in the US academia more than 10 years. Perhaps for a casual conversation, is it more natural to line up words?
I'm not sure what you mean about connecting the sentence with 'of'; I can't see where that would work naturally in an English translation.
Having a few adjectives before the noun is fine but sure, you wouldn't see that in academia outside of literature studies. But this course is teaching functional Spanish, not academic.
Regarding the hyphen, 'low-cost' should have one to show that 'low' is modifying 'cost', not 'phone' so it's frustrating that the option isn't there. I personally think that for learning, and to ensure you have the options you want, it's better to choose to type your answer than use the word bank.
'En venta' just means for sale as in you can buy it. It's being sold. 'On sale', as in offered at a lower price would be expressed differently I believe. Also there's a difference between 'a bajo costo' -at a low cost and 'de bajo costo', -of low cost (as in it's just the budget model/lowest price phone they offer. Here's a good link to see some ways that 'on sale' might be expressed in Spanish: http://www.wordreference.com/es/translation.asp?tranword=cut+price