Is it okay to cuddle your psychologist?

Generally, physical contact between a doctor and his/her patient should remain, though close and confidential, professional and platonic.

If, within the context of the treatment the "cuddling" is limited in scope and intended therapeutically (such as helping you to remove physical comfort barriers through exposure therapy), it is not necessarily inappropriate.

On the other hand, if there are any romantic or sexual undertones, I would suggest seeking another psychologist. A romantic attachment to your shrink is a common self defense mechanism that helps you avoid your problems at best, and is an indicator of sexual manipulation at worst.