Went through a really similar thing with my DD1, now 4. She went through a real "gothic" phase at about the same age as your DS. Completely obsessed with death. I was very honest, and am not religeous myself so did tell her that when people die it is forever. I did tell her that everyone dies eventually, but couldn't quite bring myself to talk about children dying, (in our case there seemed no real need). I didn't point blank deny that children sometimes die, just when she would say tearfully "I don't want to die/I don't want Poppy (friend) to die" I would say, "you/Poppy are children, children don't usually die."
She sometimes cried and said she didn't want me to die. I'd just tell her that I'm really healthy and not going to die until I'm really, really old and that she mustn't worry about that. Lots of cuddles and honest reasurance.
My mum died before my she was born, she often quizzed me as to all the details around her death, (how, why, when, were her eyes open/closed, did she still feel poorly after she died, where did she go after she died) I would tell her that she went to the church after she died. Couldn't quite bring myself to talk about cremation! Although she does know about that now.
Although she found the whole thing very sad and I found the whole thing very upsetting; constantly wondering if I was doing the right thing with the whole honesty approach! I now absolutely believe that it was the best thing. Although she felt very upset about the whole thing, I think my honesty reassured her rather than making it the scary unknown for her. I think her obsession was probably sparked by a family berievement when she was 2.5 which she didn't really remember but effected the whole family in a big way.
Now she doesn't talk about death much at all, but seems to have a good understanding of what it's all about, which I think would stand her in good stead if - touch wood - we did loose anyone important to her. At least she wouldn't have to get her head round the whole concept, just the grief.
Appologies for the mamoth post btw!!!