SPOILER:

Pretty much, the players on stage made it seem like Katara was into Zuko. Please note that there was NO blushing on either Katara or Zuko's part. They looked at each other like o.0 and MOVED AWAY FROM ONE ANOTHER. and when play Zuko asked if Katara was the Avatar's girl, she said they were just friends. Upset, Aang leaves. Later, when Katara goes to see about him, he asked if the play was right and ask why they aren't together after the kiss they had. Katara didn't say she saw him as a little brother: THE PLAY DID. However, she does admit that she doesn't know how she feels. He kisses her and she DOES NOT IMMEDIATELY BACK AWAY, however she does get upset because she'd just told Aang she needed to think about it. She leaves, Aang feels bad.

Then, apparently when Aang is suppose to be facing the firelord (in the play) they once again make reference to them being friends. Aang looks visiably upset but SO DOES KATARA.

This episode really left everything up in the air and you can interpret everything for each ship either way. For instance, supposedly what you see on Ember Island and what was on stage was suppose to be correct intrepretations. I can see a Zutara fan trying to jump all over this however, that must mean their ship is doomed to never sail because ZUKO DIES. And to honestly say the intepretations of the characters were correct would be stupid, to say the least. Maybe a tad bit on spot, but way off all the same. Also, no matter how much a Zutara fan would have wanted it, that's NOT the way things happened in the cave, period. (Or Katara is a serious, erm...yeah...)

You could take the way Katara and Zuko moved from one another like a hint that they either don't like each other and don't want anyone to get the wrong idea...or that they do and they're just trying to hide it. Of course, considering Katara has visiably blushed when it came to Jet and Aang, two people we arguably know she likes/liked, I find it odd that neither blushed but simply looked liked WTF?! and moved away from one another.

Katara never said whether she liked Aang or not and she certainly didn't say she liked him only as a brother. She outright said she didn't know how she felt and that it was the wrong time to get together, what with a war going on. I think she's personally considering it, but there are just more important things to worry about and she needs to be clear on her feelings.

I doubt seriously Kataang is dead by a LONG shot. And considering the way Zuko lit up when he talked about Mai in TBR and that entire episode as a whole, I seriously doubt Zutara is any closer to happening. If anything, it reinforced that he did still care for Mai, enough not to put her jeapordy but more importantly, that she still clearly cared for him.