All right, these may be total wishful thinking on my part, or they may be totally viable possibilities. You guys decide.

Spoiler

First off, I couldn't help but notice that the light when NiGHTS "dies" starts to resemble snow as it fades. You know, when it falls onto the kids? I think this is significant because it's the last time the two are together in their dreams... and when they finally meet in the Waking, what happens? It starts to snow. I couldn't help but notice the striking similarities.

My biggest hope also lies in that situation. After NiGHTS disappeared, the kids left the Dreaming.
Maybe that "death" was simply NiGHTS leaving them, as they woke up?...

Secondly, about the lights crashing out. Now, that happens during "Dreams Dreams," AND immediately after Will seems to remember what it is. I think that memory plays a major part in the reason they blinked out. More on that in a second.
Plus, the lights go back on immediately after Helen sees Will, when they meet again. That has got to be significant.

All right, back to my point on the lights going out. What did Wizeman say? "As long as darkness exists in the hearts of humans...then I and the nightmarens will also continue to exist."
I think the very fact that everything crashed into darkness when "Dreams Dreams" started playing (of all things), and the two dreamers who remembered it were there to do so, speaks enough for itself.
That darkness may have showed up to remind us that we're human, the kids are human, and we all have a bit of darkness in our hearts, regardless. That's part of why we're human after all. Fear, anger, sadness... all that "darkness" is a part of what it means to live, however dark it indeed is, and because of that Nightmare can never die. It's just as vital a part of us as our dreams.
When the lights went back on, it was when the two dreamers met, as I said. I think that signifies the flipside... that yes, darkness is a part of us... but so is light. We all have iDEYA, we all have hope, purity, intelligence, wisdom, and courage... but sometimes it's hard for us to realize it. That's where our dreams come in. When Helen and Will met again, that truth was practically personified, and the lights shone again. Dreams cannot die while humanity lives either.

I'm still shaken by what Wizeman said to NiGHTS, though... you know, "You plan to sacrifice yourself to stop me?... If you destroy me, you will be destroying yourself as well." I don't know what to make of that. Any more ideas you kids can give?
But, then again, NiGHTS replies: "I know what I'm doing" and tells the kids "we need to protect your dreams." Maybe Machenstein is right-- maybe NiGHTS was simply reborn as a creature of dreams, instead of one of Nightmares. If he defeated Wizeman and that part of himself was "destroyed", then the dreams of those who believe in him might have "resurrected" him in a better aspect. I don't know.
I don't think Wiz "dies", though. I honestly can't say I can guess what happened to him, but I seriously doubt he's dead.

The reason why I think all this, though, stems from my own personal beliefs on the nature of dreams and those in them... let me elaborate.
I think that the beings in dreams have their own lives and identities, yes, but only continue to live through the dreams and nightmares of we dreamers. For example, if everyone stopped remembering and dreaming of NiGHTS, then he would indeed die, but as long as he remains in our hearts then he lives on. Ditto that point with Wizeman, Reala, and all the other 'Marens. I don't think it's possible for them to die as long as what they were "born" from continues to exist: dreams and nightmares... and we dreamers. Simple as that.

So... nobody died. NiGHTS was on the clock tower at the end of it all, you know.
He lives on!

Did anyone else notice that the clock begins to ring when the lights go out? What do you think of that?
Also curious, does it strike 3 times or am I just deaf?
Lastly, when NiGHTS is on the clocktower at the end, it says 2AM. Any significance to that?

Spoiler

Since everyone does indeed have darkness inside of them, nightmares can never die. Therefore Wizeman can never die. So NiGHTS can't die because Wizeman can't die. Also, just to touch on what someone else said (completely unrelated to the quote up there), whatever DID happen to Reala? He just kind of dissappeared after the second battle with him. If he's still alive, then again that means that no one's dead. So I guess the point is that I agree with spinningcannon; no one died.

Helen: Catherine O'Hara
Owl: Robin Williams

So yeah, there is definitely room for a sequel. I am sure Wizeman, Reala and the rest of the Nightmaren will return as well. It would be cool if NiGHTS 3 includes every single Nightmaren from the first and second game, as well as some new ones, as well as explain NiGHTS as a Nightmaren before he rebelled against Wizeman. The game should also include a couple new dreamers in addition to the original ones, maybe an evil child who would make an allegiance with Reala. It would be the series ultimatum. =P