Squall is completely alive.
He just didn't hang around in the party, since he was with Rinoa fulfilling their promise of watching meteors together. Their smiles, embrace and kiss on the balcony didn't look all that illusory to me...

I don't think Squall was ever 'dead'... just very close, when he was trapped in that time-compressed void of his own making, separated from everyone and everything he ever cared about.

I'm glad this thread's title has a 'spoiler' warning... but even the title is a spoiler, so I'll just change it a little.