No, Japanese people don't sleep in cabinets. Normally at home, Japanese people either sleep on tatami mat floors on thick futons, or on beds.

This is a typical futon on the

floor. The futons and bedding are put away during the day in big wall closets called oshiire, and taken out at night. This clears the space for other use during the day.

But increasingly people prefer to sleep on beds. This is an ad for a mattress.

The Seinfeld episode is probably referring to capsule hotels - Capsule hotels first appeared around 30 years ago in urban areas, to accommodate office workers who had missed the last train home. The sleeping accomodations consist of small capsules with just enough room to sit up to watch TV or read, or go to sleep. Here's a report on a typical capsule hotel (though many capsule hotels are still men-only).

This is a report on a very sleek, modern version of the capsule hotel. The setup is still typical though: shower and bathing facilities separate, a locker provided for each guest, and a small capsule to sleep in.

Here's another video about the same capsule hotel. (Most capsule hotels have an image of being run down and a bit grotty, so this place is an exception. It would be nice to see such places crop up everywhere though. )

A more recent phenomenon is the napping salon, where busy workers can go to take power naps. Some capsule hotels are also open during the day for taking naps or resting.