....his way of being cantankerous when he already agreed; he's probably more upset with HIMSELF for not telling you what the boundaries were in the first place.... Most times, when a neighbor says some hing "doesn't bother them that much", they are really just being polite....
His way of warning you exactly HOW serious he is, is the dog. "If you want your chicken alive, keep it in your yard, or my dog 'might' eat it".... Again, being polite....in a way....
That was a warning I would most definitely heed, respect my neighbor, and be able to look at each other without anger 
 
 
They're your neighbors; ya might be there a while,night as well do as much as you can to keep peace...
You mentioned the wife is nice, why not invite her over for tea and ask what she thinks of the situation.... You might be able to plant a bug in her ear about THEM putting up a nice picket fence on THEIR property, just for home value if anything 
 
Build a run for yours too though, it shows that you are thinking of them 
