"The ice is in the glass."
Translation:Il ghiaccio è nel bicchiere.
I'm wondering the same thing! This page suggests that it's based off of what article it would normally take http://www.livinglanguage.com/community/discussion/390/in-vs.-nelnellonellas/p1 but maybe someone can explain further?
You are exactly right: the form of "nel" is based on the article that would otherwise be there. This link has a chart of exactly which form to use with each article. You can see how the article is combined with "ne" as you look at the chart. http://italian.about.com/library/fare/blfare153a.htm
Il ghiaccio è nel il bicchiere, nothing wrong with that answer as far as I can tell. Sometimes I am punished for using the article and other times I am punished for leaving it out even though it is fine.
It is completely random. For example if I put Mangio la zuppa instead of Io mangio la zuppa I get an incorrect answer, both are fine but duolingo changes up the rules on every question.