How does distance affect the disappearance of items after death?

Dropped items will last for 5 minutes while their chunk is loaded, and then will disappear. While the chunks are unloaded, they will stay idle and the disappear counter won't run.

When playing Minecraft, your world is loaded in chunks - 16x16x128 areas. The nearest 81 chunks are loaded while walking around the world (a 9x9 chunk grid with your chunk in the center). This means that about 80 blocks around you are loaded at all time (give or take a few depending on where in the chunk you currently are). When you are within 80 blocks of an item, it changes from its idle to its active state.