It depends on exactly what you mean by time. Schwarzschild coordinate time stops at the event horizon, i.e. the metric coefficient g_00 goes to zero.
The proper time of an infalling object is finte, though. This proper time is computable by the outside observer, as well as directly observable by the infalling observer via a clock.
So when you say "time stops", it's a bit ambiguous. Coordinate time (specifically - Scwarzschild coordinate time) stops at the event horizon. Proper time doesn't. If you think of time as being coordinate time, then yes, the coordinate time stops. But this is a property of a particular cooordinate system, and as I remarked before, not of any particular physical significance, and coordinate systems do exist in which time does not stop at the horizon such as the Painleve coordinates.
"Proper time" exists for the outside observer just as it does for the infalling observer. The difference is that the outside observer has to calculate it, he can't directly measure it with a clock. The proper time for an object passing through the event horizon does not stop, even though the coordinate time does. This is true for a clock on the object itself, it's also true for the proper time that a distant observer would calculate.