I can't answer, as to the progression - though at two, the pit mix is now mature. I don't think you were wrong to ask for the dogs to meet. You are neighbors. IMO, it is good if neighboring dogs can meet and learn to get along. It makes life easier. My dog gets along with the neighbor dogs that share fences. They happily greet each other, when outside at the same time. The neighbor may not understand the GSD playing style. If Molly wasn't bullying him, especially with him being completely submissive, I don't see the problem.
It would have been nice, if the neighbor had given the dogs a chance to get to know each other. Now, his dog is behaving badly and he probably has no idea how to correct the behavior. At this point, I think you and Molly should definitely keep your distance.
Natty Boh 6-27-12
Annie 1998 - 8-2-12 RIP
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