Well I think it is open to interpretation. Of course what you said is one of the ideas; Neo and Smith were opposites, it was mentioned in one of the films I think, the Architect told Neo that he was the remainder to an un-balanced equation...so that idea is that Smith was the balance, so when Neo and Smith merged like that it cancelled them both out and destroyed Smith.
The other idea is that, since Neo was plugged directly into the Matrix it pumped him full of anti-virus or something to destroy Smith like that, that is one reason you see Neo getting pumped full of light, or of course that could be due to him cancelling Smith out, no-one except the Wachowski brothers really know for sure lol
It didn't really say if Neo was dead at the end though, when the machine drags him away he is still glowing, plus the Oracle tells the little girl that they might see him again.
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