From what i understand (which might not be very much) is that there are 2 opinions regarding who can be Mashiach. 1 is that a person who is not alive cant be Mashiach and another is that a person who was killed cant be Mashiach and that, i believe, is one of the places the difference in opinion comes from, since the Rebbe wasnt killed, people think he can be Mashiach. (i’m not a mishechist, i heard this from a family member who is)
Also a lot of time when people say the Rebbe is alive, they dont necessarily mean it literally, they are saying that just because the Rebbe isnt physically with us it doesnt mean he has stopped guiding us and leading us. its a bit similar to the concept of Yaakov Avinu lo Meis, we can still be mekushar to the Rebbe etc
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