There is a rule for this riddle. If the sentence starts with "Now listen," then she died. Otherwise, she didn't die.
It could go like this:
She die she died she dies, did she die? - No
Now listen: She died she died she died, did she die? - Yes
According to this Ask Metafilter thread, this kind of riddle works like this:
In a group of people, someone will start out by making some sort of statement. The statement has to adhere to some sort of unknown rule. After a few statements, someone else in the group will try to see if they know the rule by making their own statement. The person who knows the rule will either tell them that they are correct, or counter their incorrect statement with a correct statement. The idea is to keep going until everybody in the group can consistently make correct statements.
Here's an example:
"I am running with scissors. I drop them. Are the scissors opened or closed?" (at this time, players can guess) "They're closed."
"Now I'm running with scissors. I drop them. Are the scissors opened or closed?" (players guess again, probably guessing "closed") "No, they're open"