Yes, the 3rd Gen seats do fold flat. I am just under 5'8" and can sleep back there just fine. Anyone taller than 5'9" might have to sleep a little bit diagonally, but it isn't a problem.

This is the trick: The rear seat bottoms are attached to the truck by only two bolts per side. It is super simple to get a 12mm (I think) socket in there and unbolt the bottoms. Just fold them up towards the front seats and the bolts are exposed. I put the bolts back in the empty holes so I don't loose them and remove the seat bottoms. You can gain at least 4 more inches of useable space this way, plus it makes it easier to crawl into the back from the drivers seat!

-Sherpa