This was hinted at the other day when the idea of an "Immortal" achievement for Ulduar was thrown around, but Bornakk has stepped up to clear up exactly what's supposed to be happening with Naxx's ultimate "flawless victory" achievement.
He clears up all the questions that people have asked. To get the achievement, you only have to be present for Kel'thuzad, as long as no one has died on any of the other bosses. And "dying" on the other bosses means any deaths at all -- including wipes, or any other deaths while bosses are engadged. Deaths on trash are apparently fine, and will not lose you the achievement, but if anyone dies on a boss, the raid ID is lost for the week and you've got to start over again next time (of course, you can still go through and get all of the loot and other rewards, so it's not a total wash).
It's tough, no question, but remember that this is an achievement, not a part of normal progress. It's designed to really push your guild (or at least show you've got some good gear). While most of Naxx won't give an experienced, well-geared guild much trouble, achievements like this one can and should be more of a challenge.