Wow! You are an
incredibly lucky person.
Your neighbors really dropped you in it! I'm not a lawyer or a cop and I don't know what the laws or police are like in your neighborhood, but here in the US you risk at least arrest. That alone, convicted or not, will follow you everywhere you go and is enough to keep you from anything that requires a background check (like certain jobs or renting an apartment). You also risk losing all of your money and stuff to
civil forfeiture even if you're not formally charged with anything. Add to that, if your neighbor was hitting any child porn sites, you could be officially labelled a sexual predator and a pedophile, and you'll have to deal with all that brings. My first piece of advice is to buy and read a copy of
Arrest-Proof Yourself. This guy is a former cop, former FBI agent, and now a current defense attorney. The book covers (among other things) how cops think and why they do what they do. Make no mistake, even if they've said they're dropping it, you are on their radar!
Now on to the technical stuff. Considering how hard your neighbors dropped you in it, you may want to (read:
you should) reconsider sharing your wifi with them. At least change your wifi password and make sure you are using WPA2 encryption. Consider
disabling WPS if it's available on your wifi router. Here are
some recommendations to secure your home network. Follow these suggestions.
If after all of that you still want to share your network with your neighbors, that's your business. You will want a solution that will:
- Force your neighbors to use IP addresses that can be traced back to them (either a static IP or sticky DHCP delivered by your wifi router).
- Log at least all of their traffic to the internet.
- Withstand a technical challenge from an over-zealous prosecuting attorney and all of the experts the government can afford with your tax dollars.
That last one is a doozey; I doubt anyone here will make any promises. What you're looking for is a level of solution used by a small business. Your best bet will probably be to hit Google and search for proxy or logging solutions. Also, consider using a service like OpenDNS to provide you some filtering capability.
Good luck!