I think people in general, (this is no stab at the OP or the neighbor either) because of technology, communications gadgets and social networking etc. have become unaccustomed to talking to other people face to face to work through such problems.
I know for me personally, I tend to be a little more bold sitting here behind the keyboard than what I am when I go out to introduce myself in an attempt to sell myself business wise and/or talk to neighbors about their intrusions.
I try to keep a nice yard, and my neighbor doesn't care a lick about his yard. He has 4 kids who don't listen to him or ever do what they're told, even when he's screaming at the top of his lungs at them, which he does way too often. There are toys of all sorts and sizes, bicycles, wagons, mom and dad's junk etc. filling this guy's yard. Very often, I go out on the back porch for my morning smoke, to see that his kids' junk is spilling out of his yard, ten feet into mine. It annoys the hell out of me.
Against my better judgement, I befriended this family because they had a Pit Bull that I felt would be better socialized with my dog "Colt the Bolt". As soon as they moved in, I saw their Blue Nose Pit (Burp) and thought, "Oh no, that's going to be the death of Colt". Well Colt and Burp are fairly well socialized with each other after lots of work, though Burp wants to play and Colt tends to want to fight to the death.
Every time I turn around, this guy is like, "Dave, do you have a circular saw I can borrow?" "Dave, do you have an oxygen sensor socket I can borrow?" "Dave, got twenty bucks I can borrow?" "Dave, need any help up at the shop today? I need beer money.." and the very next day...."Dave, can you run me to the pharmacy in Manchester? My dad paid for my kid's medicine, but I don't have any gas to go get it." Freeking unreal man...The guy chooses beer over his baby's medication...
Sorry for the rant...
I guess the moral to that story is, be careful of how close you position yourself to your neighbors. But at the same time...
Plenty of days, when I see this guy out in his yard, I yell across to him and tell him to have his kids come out and get their junk out of my yard.."Right now". I have to have this conversation with him (currently) at least once every two weeks. I used to have to tell him every day.
Seems that he and I were raised differently, because I wouldn't dare allow my mess to spill out into a neighbor's yard like that.
I used to think to myself..."Man, this guy simply doesn't give a crap about anything!!" Once I called him out on the issue, he made a small stride towards a remedy. When I started calling him out on it every day, I realized that the situation with his kids and their behavior was something that snowballed out of control over time, that he really does care about the discord his kids are causing his neighbors. He just feels powerless over the out of control situation with the behavior of his kids. He simply doesn't possess the tools "currently" to reel them back in.
Perhaps the same will be the case with the OP's neighbor and their dog.
Dogs, just like kids, need certain things to be healthy and well balanced. It all starts with the walk. It is suggested that a dog, (in order to be well balanced) among other things, should have 1 hour of linear exercise daily. We see the 6-8 foot privacy fence with the barking dog behind it, so we know the dog isn't getting the one most important thing it needs to be balanced.
A lot of people look at dogs as furry, lovable companions. A lot of dog owners view, and treat their dogs as people, "a member of the family", which is to be expected. What a lot of dog owners fail to realize, is that just about all dogs, in their lineage, were bred as working dogs. They instinctively want to work...actually they need to work....and they will work...whether their owner gives them a job to do or not.
The problem is this... Dogs are not very good at choosing their own jobs to do. When they choose their own jobs, it's usually chewing up the sofa, or nervously over protecting the back yard from intruders, hence all the barking.
The owner comes home and finds the work the untrained dog has been doing in their absence, and they scold the dog. The dog becomes a bit confused and disgruntled, because he thought he was doing a good job. Next time he chooses another job to do, the owners probably don't care for it, and it snowballs from there. A lot of dog owners don't have the tools to properly cultivate a well balanced dog, but they love them very much.
Chances are, the OP's neighbors love their dog very much, and would probably do whatever they could to save it from being displaced or worse. Simply sounds to me like the dog has tons of pent up energy from not walking every day, and perhaps it's become a bit aggressive and territorial due to not having a daily work routine.
None of these things are the OP's problems but unfortunately he does have to deal with the dog barking during important rest times. I suggest talking to the neighbors, explaining the problem and perhaps talking a little about the apprehension of confronting them and maybe even showing them this thread.
At that point, if they just want to be inconsiderate neighbors, I guess the OP has no choice but to follow other avenues to resolve the issue.