How do we respond to those who permit addressing the dead and seeking intercession and aid from them, citing the Tashahhud: "Peace be upon you, O Prophet, and the mercy of Allah and His blessings. Peace be upon us and upon the righteous servants of Allah"?

The address in the form "Peace be upon you, O Prophet" in the Tashahhud does not imply the permissibility of seeking help from him. For peace is invoked upon all Muslim deceased with this very formula, and those who seek help do not claim the permissibility of seeking help from the deceased other than the awliya' (saints). Imam Ibn Hajar mentioned regarding the meaning of the style of addressing the Prophet with peace that when the worshipers entered the Kingdom (Malakut), they saw the Prophet present, so they greeted him.