I don't think he died. There were many cases where the pet that comes back is kept for a while, and then put down again just because it wasn't the same. It wasn't right. I seem to recall some pets that seemed rather brain-dead. Now, Rachel doesn't seem that ...docile? But perhaps she's controllable. And not_nadine is right. It would be better, certainly for Louis, if Rachel kills him. But isn't it sadder that he lives and has to control this thing he's made that looks so much like Rachel? And then, ultimately, have to kill her again? Because that's always what has to happen to those you bury back in those woods, beyond the deadfall.
For me, the horror in this book comes from seeing a loved one so transformed... so altered... that they're unrecognizable. Literally, unrecognizable. If you didn't know it was them, you would never be able to tell for yourself. But what makes it horrifying is that you do know it's them! And even worse, it's not a physical alteration, but a spiritual one. And the horror doesn't quite stop there... the transformation is one that you, being the person who loved this pet (or person *shudder*), made happen. I've read and watched too much "horror" to be too creeped out by reading about a malicious zombie putting it's hand on someone's shoulder.