Dear Sanbob,
 
I completely empathize with your situation. Bullying is never pleasant, but the good news is that in this day and age there is a lot more research on the subject and the issue is better recognized in mainstream society as a real problem and no longer a right of passage.  I recommend reading some articles on the subject to build some background knowledge to help you approach the issue effectively.
 
http://www.education.com/reference/article/Ref_How_Parents_Agents/
 
http://www.education.com/reference/article/ten-actions-to-eliminate-bullying/
 
http://www.education.com/topic/school-bullying-teasing/ - this link is to the Education.com special edition page on the subject of bullying and is full of information, resources and solutions for addressing the issue in a healthy manner.
 
I hope these articles help you gain a better understanding of the issue.  One of the articles suggests getting the support of professional school staff and talking to your family doctor, who can get you in touch with additional resources in your community that can guide and assist you and your son during this challenging time.  
 
Your son is lucky to have such a wonderful parent who is looking out for his well-being. The issue of bullying is a sensitive one and can be detrimental on so many levels, but addressing it appropriately when it is happening is the best way for healthy, lifelong resolution of the issue.
 
I wish you the best and would love to know how it all works out. I'm sure there are many other concerned parents on our site who would be interested to know your process and outcome too.
 
Best regards,
Lori

Hello,
First of all, I am sorry about "the bully". It is even more of an issue cause of him living in the same neighborhood. The best thing to do is go talk to the parents of the bully. Since he lives across from you, this may be the best approach to take. I would invite them over for some iced tea or snack and discuss some ways they could help their son not bully yours. I would also ask for their son to join them. The boys seeing adults talking and using language to make the issue better may have an impact on how to deal with their differences. I would also like to suggest that if both families are Christian, the prayer would be an awesome thing to do at your meeting. If all else fails, it is time for your son to find some new friends. I would try church and the park. Good luck ;)

I'm so sorry to hear about your son. Your son seems to fit under the title of "The bully-victim."  He has been bullied severely and is now displaying the effects of victimization.  The following are some reference articles which may help you understand your son's feelings of lonliness and isolation and ways to combat the effects.
http://www.education.com/reference/article/what-is-a-bully-victim/
http://www.education.com/reference/article/signs-of-bully-victim/
http://www.education.com/reference/article/bullying-myths-facts/

Good luck!
Rachna