You can talk to neighbor, but I would be surprised if anything would change.

Great time to teach you children that there are people in the world that make bad choices.  Here is one of them.  Tell him that you/I make bad choices sometimes too.

We can not always change the world, but we need to live in it the best we can.  Some times we just have to look the other way when we pass by and pray for those people, just as I need prayer some times from others.

I would encourage him not to discuss it with this friends and move on to another subject if it is brought up or just ignore the subject when it is brought up. 

Here is also an opportunity to teach him that certain words and actions are not proper for a gentlemen or lady to use.  Ask him what he want to grow up to be, a gentlemen that people look up to and respect or someone like the man who post such signs?