Telvanni mage lords tend to be cunning, aloof and at least a little crazy. I'd say it's plausible that he faked his death. As for the pronoun, he may remember that he met the Nerevarine without remembering the Nerevarine himself or herself as the case may be. This doesn't sound plausible in that case but then he's lived for hundreds of years and he more or less named the Nerevarine Hortator to shut him up and get him out of his tower.
But then nobody discusses any personal details about the Nerevarine anyway. Even Neloth is an imposter, most people in Morrowind should know the Nerevarine's gender even if the education system's collapsed since the fall/reform of the New Temple. But all anyone's said since is that he's gone, possibly to Akavir and the may as much truth in that as the Eternal Champion having been Shathra the Ohmes assassin.
That being said, Dragonborn's continuity is a bit iffy in a few areas:
- Both Neloth and Varona Nelas look younger and more importantly, have different personalities.
- Milore Ienth says that she learnt alchemy from Lami in Morthal before hearing about a Dunmer settlement forming on Solstheim. Either that news travelled really slowly or Lami is over 200 years old. Not bad for a Nord with no apparent spell casting ability.
- Raven Rock is said have been home exclusively to Imperials and some Nord in 3E432, all dependent on the mine for their livelihood. So what happened to the roughly 50% Dunmer population in Bloodmoon?
- In Oblivion, the legions stayed in the provinces. In Dragonborn, it was recalled.
- Since when did Skyrim have the authority to give Solstheim to Morrowind?
- What happened to the Nordic invasion of Solstheim?
- What happened to Nords outside the Skaal and Thirsk? The reavers, berserkers and fryse hags?
- What happened to the grahls?
- When did the barrows turn into enormous fancy dragon cult style ruins?
- Did the Ulen family buy the Morag Tong or something? Fighting to last man for a client isn't old MO and neither is letting them join in.
- Why does a priest who claims to be an Ashlander have a house Dunmer name, when the Velothi working class of the old Redoran towns didn't and now being an Ashlander only enhances his status in the Temple?
- Was Captain Carius definitely not killed under Mortrag Glacier as he likely was in the werewolf Bloodmoon quest line?
A quest to kill Neloth was removed, but not both. Or perhaps all. Although if ones says that all observable quest outcomes are canon, it could be argued that Neloth should be dead following the Nerevarine claiming the title of Telvanni Hortator, because killing councillors, even all of them, was a legitimate way to do that in that case.