How can I do a cascading Entity Reference data entry or is it even possible?
I've not used it yet myself. But, if you want an out of the box solution you can try the Hierarchial Select module:


  This module defines the "hierarchical_select" form element, which is a
  greatly enhanced way for letting the user select items in a hierarchy.
  
  Hierarchical Select has the ability to save the entire lineage of a
  selection or only the "deepest" selection. You can configure it to
  force the user to make a selection as deep as possible in the tree, or
  allow the user to select an item anywhere in the tree. Levels can be
  labeled, you can configure limit the number of items that can be
  selected, configure a title for the dropbox, choose a site-wide
  animation delay, and so on. You can even create new items and levels
  through Hierarchical Select!


See the project page for a Demo page.

Depending on how complex your criteria is you could also consider the #states Form API of Drupal 7, or a simple jquery Ajax callback on your select tags in the form.