Ok, I'm going to be the 'odd man out'. I agree with the prong, not the muzzle, though. This dog isn't DA, it was in prey drive. Get yourself a hiking pole or a large stick. You can whack either your own dog if it gets rushed by a small dog or whack the small dog that shouldn't be out of its yard. How likely is it that your dog is going to 'get away' from you again on a prong?? Other than working harnesses, I've never liked them for big dogs. IMO, if you want control that you can't get from walking a GSD, then you use a prong. Problem solved. I promise you that if you're walking your GSD and that prong is fitted properly, he's NOT going to keep bucking it.
I do think you need some advanced classes to get a bomb proof recall and a down stay without hesitation. EVERY person with a GSD needs that! How many have it, though? Use that prey drive for schutzhund. Don't pen up your dog at home, his frustration is going to go into overdrive making him harder to handle. Up your training and mental games. Up the physical exercise. Do NOT be afraid or nervous when taking him out. Your dog will be all over that. In the dog's eyes, he did nothing wrong. He probably hasn't thought about that dog since that day. Your neighbors had a reason to fear your dog BEFORE it killed the Yorkie, they just didn't know it. The dog hasn't changed. Not one bit. It was the same dog before and after that attack. He didn't attack a human. He killed prey. A truly dog aggressive dog or human aggressive dog needs a muzzle. Your dog is a normal GSD that just happened to catch what he chased. Lack of control and training. NOT the dog's fault. An accident. It happens. You have GOT to move on. Your dog already has. Tell your neighbors to keep their dogs in their yard supervised, and you'll keep your dog under control and that's that.
My pup is a sweet guy. He really is. However, he's already shown that you don't mess with or threaten his handler. Does that make him dangerous? NO. That makes him a GSD. ANY GSD can be seen as 'dangerous'. That's the nature of the dog. However, your neighbors getting all up in arms because your dog was acting like a shepherd is over the top. You correct what is wrong on your end. Your dog isn't 'mean' or anything else they want to say. Just accept that it was a screwed up thing. If you muzzle your dog, it's going to send the wrong message, IMHO. I think it will just key up your neighbors more, and possibly confuse your dog.
Wrath of Grim z Dragon
"Mr. Grim"- Threaten my handler. I dare you.