It's unfortunate that neighbors like this exist, I think almost everyone here has one. Up the road from me is a cop in the city about 35 miles away, thinks he runs the area. Funny part is he does more illegal things then 10 neighbors combined. Just remember this, karma is a real bee-otch.
We had a nice old guy around here that was in his 80's and suddenly passed on, this guy literally stole tons and tons of stuff from the shop, barns and house and everyone here knows it too. This cop was using a chainsaw one day that he helped himself to from the old guys shop and nearly killed himself with it.
I guarantee it will come back to bite your "nice lady" next door. I've read this entire thread and you my friend are an extremely patient man. I think I would be in jail by now lol.