Would "Erano rimaste buone amiche." also work? (I'm not sure about the gender agreement)
Yes, it's good.
Why is stayed good friends marked incorrectly
"rimanare" = "to remain" or "to stay", so I think both should be accepted.
Why is rimanere using essere as an auxiliary verb?
In this case, we use "erano" instead of "avevano" because "rimanere" requires essere? Like, "arrivare" or "partire", for example?
Dumb question. What about friendship between two people of opposite gender? Could I still use rimasti and amici?
Yes, in mixed groups the male form is used.
Avevano rimato ... i meant. Why is the DL translation using the imperfect of essere?
Because rimanere is intransitive and requires the auxiliary essere, like all movement verbs, andare, venire, restare, rimanere, ecc...
To stay is the same as to remain according to me
I put 'they were still good friends'. Is that wrong?
But there was no ''still'' in this sentence!!!
Duolingo prefers literal translation, it's for language learning I suppose.