I do not think Toph will die, and she will only be incapacitated. Here is my reasoning:
1) We are introduced to Toph in "The Blind Bandit". She is a rich girl who is a very gifted earthbender but sheltered by her parents. She disobeys her parents so she can teach Aang Earthbending. She later teaches Aang in "Bitter Work".
2) At the end of season 2 she gets a note from her mother and is excited to go see her mom. Toph's knows that her parents are angry at her but she still wants to see her mother. Her reaction suggests that she is still interested in patching things up with her parents. Of course it turns out to be a trap.
3) In season 3 there was one episode that revolved around her. Katara accuses her of having bad behavior because of her backround with her parents. Toph later admits that she misses her parents and has Katara help her write a letter to her parents delivered via hawky.
Conclusion: When all major points in Toph's plot are examined they usually revolve around her personality, teaching Aang, or her relationship with her parents with the latter being the part of the plot that reoccurs the most. The only ways to resolve Toph's plot are for her to fix things up with her parents and go home or for things to stay like they are and wander like she has been doing. Having her die would do absolutely nothing for her plot-line. Since Toph has shown a continued interest in patching things up with her parents it should be assumed her destiny is to return home to her parents. While she is an interesing character she is relatively unimportant to the overall storyline other than teaching Aang earthbending unless you truly believe that she has a deep connection to Aang.