She is not alive, in the bonus footage of the DVD, it is mentioned she was buried with her Elmo. (There, now you can cry some more.)
I didn't see much of sesame street and was fairly indifferent to the muppets, and if you had asked me what Elmo's defining personality trait was I probably would have answered "I don't know...he's ticklish?" but I was floored by this movie. Elmo's (and Clash's) unconditional love is very profound, and the filmmakers did a great job presenting it to us. I'm glad the film is being held in such high regard.
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