Are "på" and "i" interchangeable?
No. "På" means "on" and "i" means "in."
Is there a difference between "i sengen" and "pa sengen", the former meaning "under the covers" whereas the latter means "on top of the covers"?
In a handful cases, yes, but usually not.
Is "hun ligger i seng" acceptable"? Translator gives "bed" as "seng". Wouldn't "sengen" be "The bed"?
Original sentence: "She's lying in THE bed" - therefore sengEN