This is a saying used for someone who doesn't know what they are talking about. When someones is "up in the night", they may be confused, or making up facts, or just simply crazy.
Similar Sayings: "Off your rocker", "Out of your mind", "Crazy", "Far fetched"
When someone says something that is absolutely ridiculous and does not make sense, you respond with:
"Oh, you're up in the night!"
Or you can refer to someone else:
Mary: "Jane said it was snowing last night... it was 72 Degrees Out"
Molly: "She's got to be up in the night."