I only know the basics of how wireless networking works, but here is what I know-
it is very similar to a wired network, in terms of data being passed back and forth. instead of going thru a wire, the transmitters on each end send the packets out. if left unprotected, anybody with a wireless card can hop onto that network, and have access to it. this leads to free internet access for some, and possible data theft. any shared files are readily accessed. many people take the easy route and share the entire contents of their computer, leaving themselves wide open to get screwed.
this is what the "war drivers" do, cruise around looking for open networks, that they can hop on. most just use the free internet access, but some will do malicious things, such as data theft, installing viruses and trojans on the PC's on the network, etc. I have even heard of people logging into an open network, using the default login for the router, and locking the network's owner out of their own network!
all wireless routers have password and encryption capabilities, which allow the operator of that network to protect and/or encrypt all the data being passed around. only computers which are set up to use the password/encryption key valid for that network can read the data. this network is therefore secured.
the problem is most people take the router out of the box, hook it up, get connected, and never touch the router again. sounds like your neighbor did this. take an extra few minutes to read through the manual, which will tell you how to change the password for the router, set up encryption, etc.
It is also wise to only allow shared access to a few files or folders. anything that you wish to be shared can be placed in these folders, but the rest of your data is not accessible. and of course, firewall and anti-virus programs are a must.