Of course it can Sarah!
nosotros bailamos present tense "we dance" or "we are dancing".
Even if the authors aren't very good at Spanish they can easily look up the conjugation table just like we can.
Edit: "We were dancing all night" was also refused.
What on Earth do the Duolingo staff possibly hope to achieve by persistently marking right answers "wrong"?
For me, this sentence turned up in the section that teaches past tense of verbs. The past tense of these verbs, first person plural (we) of -ar and -ir verbs, looks exactly like the present tense of first person plural; therefore, we could say "we dance all night," but that misses the point of the exercise illustrating past tense, "we danced all night." Both translations are right, but why swim against the current? (-er verbs, first person plural use -imos)
Its OK to teach us that it COULD mean "we danced..." but clearly "we dance..." is both correct and makes sense. Reported...