The translation is right enough. I think that we can compare this with Paul. It doesn't mean that the body dies, but that the soul looses her attachment to worldly-material interests and is elevated to the divine realm, where also reasoning stops and the intellect understands beyond syllogisms.
"...after that rest in the divine, when I have come down from Intellect to discursive reasoning, I am puzzled how I ever came down, and how my soul has come to be in the body when it is what it has shown itself to be by itself, even when it is in the body (4.8.1)."
George: Thank you so very much for supplying that Greek text!
The part I'm interested in is "I am puzzled how I ever came down..." Coming down has two aspects: from Intellect to discursive reasoning; and from soul by itself -- meaning apart from the body -- to soul in the body. I think that much is clear from the text.
The part that remains unclear is what it is specifically that left him puzzled. My guess is that he was puzzled when he woke up in the body when his last memory was of being of a soul by itself. It is comparable to the puzzlement one feels when traveling and waking up in a strange place and not knowing how you got there; thus asking, "How did I get here?"
I think that Plotinus here wonders about our usual condition, when we are capable of having such a noble life, how we manage to debase our nature. He is so excited that he can't believe he didn't stay like this forever.