Although it looks like I am in the minority I'm afraid I'd advise a neighborly conversation...one of those honesty/best policy people I guess. If you are pretty certain the second 'victim' belonged to your neighbor you would probably put their mind at ease knowing their cat won't be coming home. You did nothing wrong and had your dog contained--their cat entered the dogs domain. If your neighbor is really attached to their cats they will adjust the way they let them wander..like keep them as indoor pets. Or maybe they won't, and this way they understand the perils of free range felines.
You have no reason to avoid the topic, or hide--that appears like you are guilty of something. For all they know, their kitty is lying hurt in a ditch somewhere...I like my neighbors, like you do, and want to keep on good terms with them...but if they don't have enough common sense to understand you are bothered by this whole thing that wasn't even your fault then I suppose that is their burden to bear, not yours. You did nothing wrong, had your dogs contained, and although it's an awful thing to happen, there's not much you can do to prevent it, short of standing watch 24/7 to keep intruders out...isn't that what your dogs are for? By letting them know what happened you are giving them the opportunity to make sure it doesn't happen again. The burden is on them to prevent future deaths of their pets.
Best of luck whatever you do...tough spot to be in.
PS: I am a cat and dog lover, have 2 dogs, three indoor/outdoor cats--and I understand the many issues with the loose cats (poop in gardens, songbird killers) I also know that they help in rodent management on my little farm....can't hunt much if they are in the house. They are all neutered, get rabies shots, and have food in the garage, and seem to live a long life. If they went to the neighbors and were killed by their dog I would be horribly sad, but would in no way blame my neighbor....that is their yard.