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Here's a part of a cabinet in my wardrobe where my printer lives. It's a bit noisy with all those hard surfaces so I am just about to put up some foam padding on all 5 sides.
Is that stupidly dangerous?
You can see I have a smoke alarm there, but it won't stop a fire on its own.
Edit: the cabinet has no door, it's always open like in the photo, but the wardrobe door is generally closed. The room has some ventilation so smells do go away.
Doubtful. The main reason I could see a 3D printer starting a fire is either thermal runaway, often caused by bad software (on cheap printers) or electrical issues. You can check your wiring and make sure that nothing looks loose and all of your cables are in good condition. You can also make sure that your printer firmware is up to date. It's a Prusa right? I think you should be safe from software failure in that case, as they're quality.
If you're really concerned about it, you can also move your power supply, and even your mainboard, outside of the enclosure by using longer cables. This would keep the majority of the electrical components away from the foam and heated box. From my position I don't see an issue, but that's my personal opinion -- not legally accountable information. I will say that Stefan on CNC Kitchen uses foam as well, to get rid of ringing in prints. If you decide to go through with it, just use common sense and check to see if anything is hot. You might also get some benefit out of looking into silent stepper motors/drivers and trying to make the printer itself quieter.
I disagree that the main reason is thermal runaway. It is more likely to be underrated components that can't handle the current. This would not be immediately apparent and does usually come from lower quality printers.