It is very true that there is a somewhat different conception of what housing should be like, with Japanese housing being relatively small, compact, and lightweight (though there are those heavy tile roofs on more traditional houses...). The concept of "insulation" seems to be rather unknown in Japan, which is a real shame given their energy issues (I don't know the amount to which home heating contributes to energy usage though).
I think it's a mistake, though, to conflate all this with with a lack of quality, or to dismiss the cultural differences. Granted, if you, as a European, are trying to find housing, you're going to want what you want, not what the average Japanese wants, but your post does have a whiff of condescension about it ("These poor Japanese, how ignorant they are of our superior European practices!").
[I'll note that in my experience living in Japan, it's much quieter than urban living in the U.S., despite the higher densities and relative lack of insulation, simply because people take more care to not be obnoxious. There's some noise but it's more likely to be quiet conversation on the balcony next door, or children laughing as they play, and not so much douchebag-practicing-his-electric-bass-at-3am. The urban U.S. is noisy.]
I once visited a fairly wealthy Japanese family who had a big, newly built (and very cool) house in the countryside. It was a fairly cold windy winter's day when I visited, but the whole family was sitting in a small room with multiple glass doors to the outside wide open, with the wind blowing in, huddled around a portable electric heater watching TV...
I also totally disagree with your dismissal of the kotatsu; it's a fantastic invention (right up there with bathtubs you can easily completely immerse yourself in, with a friend), and there's very little more cozy and wonderful than snuggling up under a kotatsu on a cold winter's evening.... also, cats love kotatsus!! :] [and heating an insulated 0.5m^3 space is a lot more efficient than heating a whole house!]