I never bought that theory, just like I never bought the theory that the castle 'in the clouds' at the end of Snow White 'must mean that she died'.
"And they all grew up together, generation after generation, each passing on the tale to the next...the story of their ancestors journey to the valley, long ago" -that line at the end completely contradicts the theory that they died.
The Great Valley may appear 'heavenly' but I don't think its meant to symbolize death its meant to symbolize life...that after grief...their is life and that no matter how dark things may become, with your friends by your side you can overcome anything and their will be a 'castle in the sky' or a 'great valley' waiting for you at the end of your fight...hence the song "If we hold on together'.
That what it symbolises to me...no matter how dark things may seem, you can make it through and their will be light again, the sun will eventually shine once more. And for Littlefoot it symbolizes him healing from his mothers death.
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