Elder Brother is very vague when discussing his interactions with The Hound and informs her that “The Hound is dead, Sandor is at rest.” Metaphorically, the hateful part of Sandor that was The Hound is dead. Sandor is alive and healing.
Another piece of evidence that Sandor is still alive is his horse, Stranger. Stranger who is also at the Quiet Isle, is notorious for being wild and uncontrollable by anybody other than Sandor.
Lastly, it is known in the books that Sandor likes dogs and the man digging graves stops to pet a dog.