Does Sadako die?

It is very much up to interpretation. My personaly take is that Mai (and probably Yoichi) are saved, thru Mai's persistence and spiritual strength.
Sadako is not saved, because she is basically "unsaveable"; you can't "save" her (as reiko thought she could do in Ring 1) - you can only "save yourself and others from her". This is exactly what Mai does for herself and Yoichi in the end of Ring 2.
This interpretation of the movies is underlined even more with Reiko's death in Ring 2 - her attempt to understand Sadako has been in vain, and in the end proved fatal for herself, her ex-husbond, and her father.

I doubt Sadako will ever stop... She's un-stopable! Mai survived cause she was never in danger, and Yoichi had been saved by Ryuji. Sadako's gone away for now, but there is always a chance that she's going to come back...

That's why the finding of Okazaki's video was there.

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Miyazaki Forum - http://sophielou.proboards28.com/index.cgi

Yes, Sadako died a year or two before the first Ringu movie, down in the well, after having somehow stayed alive for 30 years. The main police detective says so twice, in Ringu 2. And Reiko found Sadako's corpse at the end of Ringu [1]. That corpse was still at the coroner's office at the beginning of Ringu 2, and Yakamura Takashi threw it into the ocean from his fishing boat late in Ringu 2. She's dead, Fred.

But her spirit lived on, to wreak quite a lot of havoc!

Dr. Kawajiri's quasi-scientific swimming pool process supposedly took all of Sadako's anger/fear out of Yoichi, and transferred a great deal of it into the water. The rest of it was apparently transferred into Ryuji. He said that he evil energy would supposedly dissipate within the water, over time.

What happens to all of that apparently diluted negative energy, is never shown to us. Would it make for evil sea creatures, if dumped straight into the ocean? Would it be filtered out, if it was sent to a purification plant there at the Yakamura Inn island? Would it go on to curse anybody who drank that water? Or could it somehow become condensed into a single vengeful ghost again?

We're never told.

The fact that Sadako grabs Mai one last time, even after Ryuji took the last bit of evil energy away from Yoichi, would seem to show that there was a bit of viable evil energy still floating around in that swimming pool, which could still condense and form a spooky Sadako figure. At least for that period of time, Sadako was resisting Dr. Kawajiri's swimming pool process.

But maybe the fact that she let go of Mai and fell back into the well water was meant to signify that the last bit of Sadako's evil spirit energy was finally dissolving and dissipating into the fresh water of the swimming pool? Her evil spirit was, perhaps, finally being torn asunder and destroyed.

On the other hand, we've still never been told what happened to that swimming pool's load of tainted water . . .

EDIT: I've got it. Chlorine: the ultimate onryu-fighter!