Huh? How is "we're eating potatoes" counted as a typo? What else would be the point of offering a "'re" tile? It's not like there could be any different German translation for "We are eating potatoes" than for "We're eating potatoes" since there is no way to abbreviate the verb in German here.
You really can't. Unless you were given "wir essen gerade Kartoffeln" (or dialectal "wir sind am Essen", German simply doesn't do a present continuous. This is a bit of an ongoing puzzle to me since Duolingo switched from mandatory "type in the translation" to "click on the matching tiles". Basically before I start on any given exercise, I first locate the verb and check if it is in the -ing form so I know what kind of sentence I have to construct. It seems to me the choice of the English translation is quite arbitrary; I haven't spotted any system behind when it's simple present and when it' s continuous.