Yes, Pokemon die. However, this is mainly in the wild. Pokemon that die while under Trainer care only really die of old age, an accident, or malicious reasons. Remember all the "Pokemon cemeteries" around, like Lavender Tower, Mt. Pyre, the Lost Tower? Someone's gotta bury their cherished partners somewhere. Also of note is malicious reasons. Remember the ghost of the Marowak in Lavender Tower in R/B/Y/FR/LG? It's heavily implied that Team Rocket killed that Marowak to get to Mr. Fuji. Case closed.