it was definately correct to just say good shabbos rather than ignore them or say more than that.also im not saying that the neighbors child wasnt doing anything but it is definatly possible that its a good friend of his whos doing the wrong thing but he just doesnt know himself what to say to stop the friend,other than trying to stick by them as a friend and try to be a good influence. so i think you did the right thing but from here on out its a very hard decision because you cant straight out make any decision since theres always the benefit of the dought (don licaf zechus) because either ur neighbors child could be occupying himself in completly wrong things or he could just be currently trying to be the best friend possible. only hashem really knows.
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