I was under the impression that if the NPC's fell in battle that they would just resurrect after the fight or some time later. I saw her fall in battle on a few occasions and she always got back up. It's been a while ago now but she died while I was playing and never got back up, I imagine her body is still where she died, is that a bug or can the ally NPC's actually die forever like that?

yes companions can die.

What happens is when they take critical amount of damage, they will fall to the floor and attempt to crawl away. enemies will ignore them and concentrate on you. However, if you ran away, and left your fallen comrade behind, they will gang up on your downed comrade, and well Lydia wouldn't have a chance.

No they are immortal gods! Sorry to be a smart [censored], but seriously what do you think, this isn't Dragon Age...

Ooops.

Guess I better stop using her as a meatshield then when fighting dragons

Yes, they can. Found it out the hard way when no less then 6 draugrs showed Lydia all the corners of the room while I was trying to level my archery skill. To me it adds to the tension and realism. I like it. Although I'm always reloading a savegame when she dies hah.

in previous bethesda games companions would only go unconscious. So dont be harsh on him.

In case you didn't know. If you get Her to carry any good weapons and armour she will equip it, she's actually pretty handy when decked out in good equipment.

Lydia kicks ass, she helped me take down my first herd of mammoths and Giants yesterday. But today I witnessed my Horse getting slaughtered by Forsworn and a Blood Dragon (I eliminated the entire camp and the dragon single handedly out of revenge) and now I don't wanna lose anymore companions so I just keep Lydia at home =\

yeah, Lydia can die. found out when i was fighting some forsworn. she charged out and attacked while i was using my bow and stealthing. got a critical hit on er and she died and fell face first off a cliff 0_o

guess I"m just lucky had her downed probably well over 3 dozen times.