I've lived in Tokyo for 16 years now, and can speak Japanese fluently. I really felt like a milestone had been passed when I no longer formulated my sentences in English first, and another one when I began to dream in Japanese. So yes, when I speak English (my native language) I think entirely in English, and when I switch to Japanese, my thinking is also in Japanese. This is important to learning a language, more so (I think) than actually knowing many words) Being able to think naturally in the language you want to use. Learners or beginners usually think in their native languages.