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I agree with you that she is dead, but I believe she also doesn't really care about Inu-Yasha, but more on the fact that she wants to hurt Kagome. I like Kikyo, but I have to admit, she doen't care that much. Also, I think Inu-Yasha is just torn between both Kikyo and Kagome. I think he needs to just get over her.
I know Inu really needs to forget about her... I mean here's why I think he belongs best with Kagome.
1: His Brother hates him for his human side.
2: Kikyo only loved his human side.
3: Kagome fell in love with him just the way he is(see the second movie)
In other words: Kagome was the only person who ever truly loved him as himself.
But, still, think about it: Naraku tricked BOTH of them, ending up killing Kikyo, and having INuyasha pinned to a tree for fifty years.......So, take this into extreme thought.........