I think if LFC can perform well then they can definitely beat Real Madrid and go to the next round. The game LFC showed against Man United was truly unbelievable. No one could have imagined that Man United would lose so many goals with LFC. However, LFC's next match against Real Madrid looks set to be a very interesting game between the two teams. Earlier in the game Liverpool and Real Madrid were defeated by Liverpool. However, if LFC performs well in the next match, then it seems that it will be very difficult for Real Madrid to win.
Yes, maybe Real Madrid will lose to Liverpool in leg 2, but Real Madrid will qualify for the last 8 of the UCL. But I believe the game will be a draw, or 1-0 Liverpool.