S.A.
First, I would not allow my child to play with another child that is violent and apparently has no rules or consequences. If they do continue to play together at all, make sure that you closely supervise them and if he acts up - take your daughter and leave. Make sure you tell both the boy and his mother why you are leaving "(insert childs name), we are going home now because you hit (daughter) and that's not how you treat your friends. (daughter) doesn't play with children who hit. Maybe next time you will remember not to hit your friends" and to the mother.. "We are leaving because your son is hitting my daughter and I dont feel that she can continue playing today."
Second, you need to speak up - tell your neighbor why your daughter isn't playing with her child. She will most likely deny that her child has a problem. Give specific examples (date and incident) of when the bad behavior has occured. Maybe she is blind to it, but she could also be overwhelmed or afraid of disciplining her child. If she seems open to it, offer some suggestions - and tell her that since she hasnt been discipling him, it might take a little while for it to work once she starts.
Third, do not punish the child because of his mother's inability to parent him. I guess not allowing your daughter to play with him is sort of punishing him, but that's more to protect your daughter. If you see him behaving nicely when they do play together (or even when they're not), don't be afraid to compliment him. ("(insert name here), you're sharing so nicely! thank you for being such a good sharer!" or "(insert name), you're doing such a good job of playing nicely with (daughters name). I like when you play nicely - thank you!") Children, especially at that age, need a lot of attention - and to them, bad attention is better that no attention. Even though his mother fails to parent him, it will help him if you give him positive feedback. Remember that he is innoncent in this - if his mother doesnt tell him that he cant hit, or that it's not nice/allowed... then how is he supposed to know??