Hey, I am new to the game of thrones card game and I already got into my first heated debate dealing with the use of flame-kissed and it's ambush keyword. I was playing someone who declared an intrigue attack with a strengh of 2. Before I defended I used the ambush card "flame-kissed" which brings his character down to 0 and kills him as the card says to do. The opponent then claimed that his attack never happened because his character is dead and was ambushed, it negates his attack and he could intrigue challenge again.

Am I crazy to think that since he declared an attacker that his challenge had taken place and that I would not need to defend, since his characters death means his attack is reduced to nothing?

You're 100% correct in this situation. The rules say you can only declare 1 of each challenge type, it says nothing of whether or not the challenge resolves. Because you killed his only attacker before the challenge resolved, the challenge failed and he lost his chance.

Like J_Roel mentioned, the opportunity to declare that type of challenge has been spent. However, to be precise he did not loose his challenge, because it just dried when attacking character died before resolve step of action window. This affects to actions that needs win/loose condition to be able to trigger(Condemned by the council, A Lannister pays his debts etc.).

This happens if you kill or reduce strenght of character before you declare defenders to challenge. If there is defenders with Strenght greater than zero, then defender would win challenge even if all attackers are dead or Strenght is zero.

The difference between removing characters from a challenge and reducing their strength to 0 is that the challenge goes on as long as there is at least one character in it. A challenge with no characters in it stops immediately without resolution. A challenge with 0 strength on both sides (but still at least one character) resolves with no winner and no loser (winning a challenge requires having at least 1 strength).