First, I would like to say that we can not be sure of the REAL evolution of the WC story without asking to those who wrote it. Did they want Blair to die ?? I mean, as the story is still unachieved, all we have to do is to extrapolate, but nobody is right or wrong. The only mean to close this endless debate would be to ask the storywriters...
Personally, I think as Loaf does. Blair's death in WCP suites me very well. And here is why (but Loaf already explained most of these arguments).
The first time I saw the final cut scene I could not believe it ! "What ??? Blair is dead ??? Impossible !!!!". As most of you do, I clearly preferred Blair to Casey. But in my way of thinking Blair's death is quite logical.
I always liked the fact that some important characters of WC died. I mean, I surely did not enjoy watching Spirit or Angel dying, but it is inevitable. It makes the story of WC more realistic : in wars, lot of people die. In this mass, some of the heroes have to die. Furthermore, it makes the story far more interesting. When you know that 1 or 2 characters of the previous opus died, you can not be sure anymore of how the character you're watching will finish the current story.
Now the Blair case. If I consider that Blair really dies at the end of Prophecy, I am quite satisfied with the evolution of the character during the whole story.
In the first episode, Blair is still a green and is not sure of his talent. As he is incredibly skillful and an good soldier, he gains respect from his pairs and become more and more self confident.
Then there was the destruction of the Tiger's Claw and the first big disillusion in his life. He lost many of his closest friends, and most of people tought he was responsible. And there is nothing he can do against this for 10 long years. You can clearly feel the difference in Blair's mind if you compare WC1 and WC2. These events have changed him. Only the love he has for Angel makes him more "optimistic".
But he lost this love too. This, plus the Battle of Terra, achieved to make him "darker" (I don't know if I used the right word here). Clearly, he is not the same Blair of WC1 anymore. He still believe in is job, but he knows, he feels that some events are above him. That maybe there is nothing he can do to change the course of history, of human destiny. But he does all that he can do save his fellows. Finally, the only way to save us all was for him to completely destroy a civilization, killing millions of sentient aliens. It is a lot for a single man.
Then there is WC4. Where Blair realized that Tolwyn became insane. I mean : I don't think there was a lot of "friendship" between them, but there was a mutual respect. Tolwyn certainly was someone respected by Blair. And finally, he was willing to kill billion of people, showing the darkest side of mankind. At this point, maybe Blair lost confidence in humanity itself !
Finally WCP. Blair seems to have no attachments, and no other friends than pilots. The Navy is his only family. With the end of the Kilrathi War, most of the older pilots lost their marks. And then there comes a new generation, with Casey, another incredibly skillful pilot. With the same doubts as Blair in the beginning... Clearly, we can feel that Blair fells nostalgia of the good old time when he observes Casey. And I think he realizes that has not his place in the Navy anymore. Not like during the good old time, at least. The world has changed, and he is "obsolete". He is not needed anymore. Nevertheless, he still managed to save Confederation's butt, but he lost ALL the illusions he had when he was young. He also lost most of what he was believing in.
And what about the Nephillim ? Could Tolwyn have been right in his forecast ? After the Kilrathi, the Nephilim. And then ? What when the Nephilim will be repelled ? Maybe the Mantu ?? Or something else ! Is it an endless strugle ? And maybe he thinks (with the WC4 events) that if there is no more enemies, the next threat could be from mankind itself ! But nevertheless, it is not his struggle anymore, there is a new generation for that. We can clearly feel (or at least I feel), that Blair is a tired hero at the end of Prophecy.
So is he dead ? Well, maybe. Maybe he let him died. But nobody can be sure…
I know it is not the answer you all wanted. But this was my vision of Blair's career and life. And in this scheme, his death is satisfying for me. It is logical. More than that, it makes the character very romantic. Like in the 19th books...
And honestly, if he survives, will he retires in a farm again, and dies many years later from a heart attack ? Well, I am sure Blair's would prefer this end, for me, this is not how a heroe must finish. It is too common...