I'll have to slightly disagree with Scott. He can view your packets to some degree. For instance...if you browse say to
http://www.somesite.com then he'll certainly be able to see every packet to include source/destination IP, source/destination ports, and the content of the packet. However, if you say browse to
https://www.yourbank.com where the site is SSL enabled then he can see where you're going, when you're going there and for how long you stayed there but won't be able to see what you actually did on the site.
If you VPN to your work through your neighbor's connection then he'll see that you went to your work but won't be able to see what you did while you were connected to your work. He'll see the time and duration but that's about it.
So the bottom line is that if the connection is encrypted then he can't see what you're doing...he can only see that you went to site X, at Y o'clock, and stayed there for Z minutes/hours. That's about it.
What you can do to disguise your surfing habits is find a paid proxy service (or free) that does SSL. All he'll be able to see is that you're surfing to the same site all the time but has no clue what you really did.
Now...if you can't trust your neighbor then why not get your own connection? And then once you get your own connection, will you trust your ISP? Because they can certainly see what you're doing if they so desire.
Casey