Why isn't it E noho i ka lina poepoe?
'Ae, 'o wai ka mea e kōkua ana me kēia nīnau?
My guess is that it's about the article, which is indefinite. Sit in a circle. That's why the answer can't be E noho i ka lina poepoe. But I believe that you have suggested a grammatically correct version.
noho = sit
lina = ring
poepoe = round
E noho lina poepoe = Sit in a circle.
E noho i ka pō'ai. Is this an option?
E noho i kekahi lina poepoe. Can that be used?