There is every indication that they died. They were wounded and couldn't move quickly (a quick initial burst, sure.) But where are the horses to escape? How can the Bolivian army miss such easy targets with multiple volleys? Unless you favor magical thinking, they died. I know I was incredibly sad.
Why didn't the director show them being shot to pieces in the end? I always thought it was for empathetic reasons: it would be too painful to see the two protagonists lying there dead and full of bullets. It's not a slasher film or a war film, it's a Western. That's good enough for me. Bloody deaths isn't the point. It was "the journey" that was fun.
Another reason is that at the time of filming Butch Cassidy and the Sundance Kid, there were a number of directors influenced by French Film (which remains true today), and one very influential one was The 400 Blows where the ending is a freeze frame before a death.
<PERSON>, who has a PhD in Film Studies and has taught at several universities, has this to say:
But primarily it ends in a freeze frame for thematic reasons. We don't want to see their defeat. 965
The movie is consciously mythic, so a myth can't end in defeat. And if it does end in defeat, it has to be uplifting, or it has to affirm values in some way. There are plenty of war movies where everybody dies at the end, [and the end still affirms our values.] It’s very unusual for mainstream big budget Hollywood film like Butch Cassidy to end with the main characters being dead, but you have the historical problem, which is that those guys died. It’s not a war movie, so you can't have heroic defeat. Part of the point of the movie is to think about the mythology of the Western, the mythology of the Western characters, especially the mythology of masculinity in the West. Having that freeze frame so we don't see them die allows the myth to live on, even as the people, the human beings, die. Because that was the fate of the actual <PERSON> and <PERSON>, who I'm sure were not quite as nice as they are in the movie and not quite as handsome as <PERSON> and <PERSON>... (Emphasis mine)
Butch Cassidy and The Sundance Kid are, as they say, larger than life.
Ask the Professor: Why does “Butch Cassidy and the Sundance Kid” end with a freeze frame? 952