Wow.. The first half of this made him sound just a little nutty, like he was lonely and needed to talk to someone. The second part about him blowing up that girl's car is a little much.
My advice is this. If you honestly feel threatened and that uncomfortable to even just say hi to the man then I think it's time to move. If that is not a plausable idea then this.. I don't suggest having a relationship with him, but it may behoove you to just play the nice neighbor. Avoidance doesn't always help things. especially if he has noticed already and has confronted you. I don't know the situation too well so it's hard to say whether is easy to just say hi and smile and walk away.
That's a really tough spot to be in because I have been in similar uncomfortable situations. Only you know how you really feel and that is probably hard to explain, but if you honestly feel threatened, I would stay out of the situation at whatever cost.
Commander Charly Titan (GSD)-15 Jan 2010