This past weekend, a squabble with my neighbor turned nasty. He had invited himself (a married man) over to my house (a married woman) via text. I refused him three times. He then asked me to erase those messages, because they were innocent but someone might misconstrue what was said. My phone had broken and I was using a new phone. I told him I didn't have the time to go through my nearly 200 texts and pick out the ones from him to erase. He insisted I do a mass erase. I refused. He repeated his request quite a few times insisting that I would be hurting innocent people. I refused. So then he said, "Well I wasn't gonna say what I know about you but we'll see after this." Which to me sounded like a threat. Especially since there isn't anything about me that everyone doesn't know. I talked to my sister (he's the grandpa of her son) and she told him to leave me alone. I was trying to avoid dragging my husband into this because he was at work and he has a temper. My neighbor then told my sister that I would regret talking to him.
The next day, my husband (I told him everything the night before because of the second "threat") sent my neighbor a text asking what the big secret was. I had been afraid he'd make up an affair between me and another man but his reply was, "Ask her." So I thought it was an empty threat. My husband and my neighbor carried on a conversatin where my neighbor insisted that I was hitting on him and carrying conversations with him too far. -->This is from an incident two weeks prior where he had been hitting on me and my sister had to tell him to stay away from me. My husband confronted the accusation because he had talked to my sister and knew the story. So then my neighbor switched gears and implied that I was online every night (facebook)acting like a slut. My husband confronted him again stating that he could verify that with a quick talk to our pastor and his wife, both of whom are on my Facebook. Caught in another lie, he switched gears again and told my husband that I complained about my marriage all the time and wanted a divorce (not true) and that I had men coming over to my house every night when my husband left to go to work. He specifically named a family friend who is a police officer. He then stated that he couldn't even be positive that it was my husband to whom he was talking and he had more stuff to tell but wanted to do it face to face. My husband's reply was, "You, Me, Crystal (his wife), Mandi (Me), and Officer Wells can all sit down and talk tomorrow night." So now he's caught in another lie and has to get ready to confront everyone involved. He finally shut up but the damage has been done.
His wife, whom I had sent a message to asking her to talk, realized what was going on, got a hold of his phone, and read all of the messages he had sent us. She quickly corrected all the lies but it doesn't change what was said. She apologized for his behavior (he's diagnosed bipolar and the doctors explained that part of his symptoms would include having affairs-->which this wasn't even close) and now he's living his life acting like nothing happened. I'm a little beyond ticked. Not only did he try to ruin my marriage and my reputation, the officer could get into serious trouble at the department for these rumors. Yet this man, knowing it's all false, won't correct them.
It really, really irks me. I've asked for an explanation which his wife gave as part of his bipolar disorder. To me, it's just an excuse to get away with this behavior. He won't explain anything to me or my husband and I'm really tempted to take him to court to show him just how much trouble he could be in.
*Forgot to mention, the first time he tried to hit on me, he actually offered to pay me $50 for a "quick job; ha ha, wink wink". He repeated the offer 4 times. I should have said something when that happened but he apologized, said he lost control.

Move away from this neighbour if you think that it will escalate into something that you don't want, or he doesn't want, or the wife doesn't want, or the police don't want.

Can you just put the whole problem in a nutshell that is easier to read and understand without the dialogue.

Tick

I can try.
My neighbor tried to make advances on me through text, which I refused. He asked me to delete the "proof", I refused. He got nasty, said I would regret it. The next day, he told my husband I was having an affair (actually named someone). After 8 hours of arguing, his wife finally got wind of what was happening and corrected all his lies. He refuses to retract what he said because he feels justified in it. In other words, I forced him to by not submitting to his threats the night before.
All I want is for me to correct what was said but he won't. I've told him and his wife that there could be serious consequences. For one, the man he accused me of having an affair with could sue him for slander. #2 he attempted to purchase sexual favors from me. #3 he caused damage to my marriage, which I was informed I could sue him over.

First, you have no real case here. This was not some public declaration. Second, he may have tried to ruin your marriage, but clearly did not succeed, So you really haven't suffered any real damages.

You may have a case of harassment, but nothing more than that.

Let me see, stop reading any of his texts, don't open the door for him and if he does come in, merely call the police to have him removed.

And stop texting back, just ingore

You need to remember that people with bipolar conditions are not rational at times. This guy really proves that. Change your cell phone number and be sure not to give him the number or just block his texts and calls. Stop trying to get an apology from this guy as it's not going to happen. If anything, he does not think or see that he's done anything wrong that he needs to account for. Read up on the bipolar problems and you will understand just how this guy's mind works (or doesn't work) and then you'll just fluff it off in the future should it happen again. If anything it sounds as if he's become obsessed with you so you definitely need to be very careful around him.