Shouldn't it be "where" not "what"? Does it have a negative nuance when "what" is used?

Rebecca

Not necessarily! They're not asking about the location, or "where," they live, but rather "what" they live in. What thing is it, what is it made out of, and so on. Ex: I don't know what you're living in, but I'm living in denial. => denial = the choice or inability to see things for what they are Ex: A: What do ants live in? B: Ant hills!