(I'd report that neighbour to the health dept. I work for our septic dept and that's a health hazard! We investigate that sort of stuff and make people fix it.)
I definitely agree. Report, report, report. Not only a health hazard for humans, but as you mentioned, the animals are being affected too.
But anyways, I wish I lived in such a beautiful place as you do. It must have been fun to pull apart that log and find all those cute mushrooms inside. I love your orange mushroom picture the best.