The Lubavitcher Rebbe answered here (and is translated here).
In order to understand this answer, he first quotes the relevant Gemara. The Gemara begins with a Mishna which (according to R' Meir) says that according to a verse both Yoreh [the early rains] and Malkosh [the late rains] fall during Nissan.
R' Nachman asked R' Yitzchak "How could the Mishna say that Yoreh [rains] falls in Nissan, it [normally] falls in Cheshvan?" R' Yitzchak answered in the name of R' Yochanan that in the time of Yoel (the prophet) both Yoreh and Malkosh rains fell in Nissan.
The Gemara continues with another discussion between R' Nachman and R' Yitzchak (over how could Shmuel age so early, as he passed away at fifty two).
R' Yitzchak said (again) in the name of R' Yochanan that he aged early as a result of his prayer.
The Gemara then proceeds to tell the story of how R' Yitzchak and R' Nachman were sitting together for a meal. R' Nachman asked R' Yitzchak to say a Dvar Torah (a word of Torah). R' Yitzchak answered in the name of R' Nachman that one isn't permitted to talk in the middle of a meal, as the food may go down the windpipe.
After the meal, R' Yitzchak said in the name of R' Yochanan "Jacob our Forefather didn't die" etc.
The sequence of the Gemara seems to be a series of statements from R' Yitzchak in the name of R' Yochanan of how Hashem acts in a miraculous manner with Jews (the first is that the early rains fell out of season and provided Jews with food, and the second is that Shmuel got old as a result of his prayer).
Therefore, R' Nachman asked R' Yitzchak to say words of Torah. He knew the law that one isn't allowed to speak during a meal. However, he thought that the law only applies to saying something secular. However, since Torah protects one from harm, one can rely on that and speak Torah during a meal.
Therefore, R' Yitzchak had to explain the ruling of R' Yochanan (that the food may enter the windpipe). Since there was a clear and present danger, one is no longer allowed to rely on a miracle to save him.
Here R' Yitzchak said a new concept. Even though Hashem acts in a miraculous manner with Jews (as mentioned in the previous stories), nonetheless, Torah and it's commandments must be kept in a natural manner.
However, this could be explained in two ways:
- This rule (that Torah and Mitzvos must be done in a natural manner) is a result of nature. Since nature is also Hashem's creation, Hashem doesn't want it to be nullified without due cause.
- Torah and Mitzvos must affect the natural world. Therefore, they must obey its rules.
The difference between the two ways is that according to the first, Torah and Mitzvos are under "nature" and are "subservient" to nature (and Torah and Mitzvos must be kept only when it's naturally possible). According to the second way, Torah and Mitzvos in and of themselves are above nature, but they (Torah and Mitzvos) have to be done within nature.
Therefore, one comes back to the question. When R' Yitzchak said "Jacob our Forefather didn't die" he meant that since he was of the opinion that the second way was the correct way (to understand the limitation of nature on Torah and Mitzvos), therefore, Yaakov (who represented Torah, and was the choisest of the forefathers) was above nature. Therefore, unlike all other things in the "natural" world, he didn't die.
However, R' Nachman was of the first opinion. Therefore, he asked "did they eulogizers eulogize him ... for naught"?
His question was not "how could they" but why would the Torah (which is Truth) write something that was done "for naught"? Since it was written in the Torah (that Yaakov was buried) and they were commanded to bury him, the Torah must be under "nature" (since the Torah required his burial, even though the Torah says that he is alive, shows that "nature" could affect Torah).
However, R' Yitzchak answered "I am expounding a verse...." This verse shows that the statement "Yaakov didn't die" wasn't referring to his physical life as was seen by the Egyptians. It was referring to his physical life as expounded in the Torah.
Therefore there is no contradiction (according to R' Yitzchak) how could the Torah command Yaakov to be buried, while at the same time saying that he is physically alive. Similar to Torah and Mitzvos, which (according to R' Yitzchak's understanding) are in essence above the world, yet their actions must be within nature (and nature "affects" truth), so too Yaakov's life, even though in essence he is physically alive, nonetheless, Torah (of truth) required his burial.