I would do everything in my power to minimize your liability here. Make sure that the only way that your neighbors can get at the dog are if they make a big, stupid effort (like having to put hands in through fencing, etc.). If you are really worried about a frivolous lawsuit like that, maybe a 'nanny cam' or something would be wise...at least then you could monitor what happens in your yard or near your dog and have evidence to back up the fact that your dog did nothing to your neighbor, and if your dog is totally 2-sided when you're not home, that would be good to know, too.

Good luck with this.