Air carrier pilot reported an aircraft landing on an intersecting runway while in position for takeoff. ATC later cleared flight for takeoff.

Narrative

Prior to pushback we briefed threats; one being the intersecting runway 28/32. Taxiing on taxiway H to runway 28 for takeoff we were approaching the hold short line for runway 28.We called tower and stated we were ready for takeoff. The tower controller instructed us to line up and wait runway 28". We did so stopping on the white painted hash marks on runway 28. Approximately 45 seconds later we realized there was a small twin engine aircraft on final for runway 32. We immediately informed the tower we were on runway 28. They responded after a long pause "hold short runway28". We stated "unable". They seemed confused and asked asked "You are unable to hold short?".We replied "We are on runway 28; you told us to line up and wait on 28". They said nothing more and allowed the aircraft to land on runway 32. They then cleared us to takeoff on runway 28. They made no further reference to the incident.Cause: The tower controller lost situational awareness. We both looked prior to lining up on runway 28. I did not see the aircraft in the broken clouds and it may not have had its landing lights on at the time. We could not move the aircraft and the tower controller did not tell the landing aircraft to go around nor did the pilot execute a go around. All of which should have been done."