As one of the previous answers pointed out, Winston has been changed from the rebellious individual into a completely obedient and subservient member of the party. This change in some ways mimics Winston's job as a member of the Ministry of Truth. His task there was to find and destroy any reference to events or people in the past that the Party wished to erase. Once found, they were changed and edited out of existence and any trace of them was dropped down the "memory hole." 

The bits of Winston that the Party wished to erase have been erased. He no longer feels any anger at the party. He no longer feels the lust and desire he had for Julia. He no longer feels a connection to O'Brien whom he thought was a co-conspirator. He cannot even wish for the reality of a bullet ending his life as it has now been given wholly to the Party. 

Had they "allowed" him to die, the Party would have lost. By keeping him alive but reducing him to his totally servile state, they have triumphed.

No, Winston is still alive. When the book concludes, Winston is waiting for the Party to end his physical existence. Winston has been re-educated, cleansed, and reborn with O'Brien's help in the Ministry of Love, so he is now ready to die.
Julia is in the same predicament.
Death is a desirable gift that the Party offers to all "healed" thought criminals.

No. He dies spiritually and psychologically at the book's end. His independent spirit is completely crushed, but he is left alive to love Big Brother. However, that image to which you refer is an indicator of how completely dead he is in these other ways: they might as well just shoot him. He's no longer any threat to them because he's dead inside.