YANBU
& I'm quite shocked at some of the comments saying otherwise, sad to think there are other irresponsible dog owners out there too, must be if they think your neighbour is within her rights....she's breaking the law, lovely fluffy sweet natured collie or not....
ALL dogs are potentially a danger to such small kids, simply because they see them as potential toys, they don't mean to hurt them, but of course they can & will if over excited & not properly supervised.......... & that bit of info came from my friend who has always owned dogs, is trained in dog behaviour, & was a police dog handler for years..........she walks her French Bulldog in her local park at 6am, so she can let him run free without the worry of small Children being around, & he is a gorgeous natured Dog, who my DD loves...even though she can be very frightened of Dogs after she was once bitten by an elderly Aunt very spoilt Shitzu
besides, is she the neighbour running behind her loose Dog cleaning up its crap, as the law also dictates ,
as the others suggest take photos, videos, any record you can, & keep reporting it, the Woman is out of order, & needs bringing into line, for her Dogs sake too..Collies DO bite, I was bitten by one myself as a child, ALL dogs bite, just as all Cats scratch, amazed any dog owner would think otherise
& if you get so fed up, you go beyond worrying about being cruel.....lt your kids feed the damned thing chocolate..........its poisonous to Dogs....maybe then your ignorant neighbour might get the message