It's hard to risk offending people you know especially when you have to keep on living with them. But sometimes it's necessary, and this is probably one of those times. The Bible says, "There is a time for everything ... a time to be silent and a time to speak" (Ecclesiastes 3:1, 7).
You may need to do this not just for your own peace or the peace of your neighborhood. The deeper issue is what will happen to these children if they grow up thinking they can do anything they want to. At best, they will make life miserable for everyone they meet; at worst, they could end up destroying themselves or in prison. The Bible says, "Discipline your son, for in that there is hope; do not be a willing party to his death" (Proverbs 19:18).
Pray for these parents before you meet with them, asking God to open their minds and give you wisdom as you talk with them. If possible, avoid criticizing them or suggesting they are bad parents; that will only create ill will. Tell them instead that you know it isn't easy to be parents today, and you want to help them in any way you can.
In addition, pray that these neighbors and their children will come to know Christ. Invite them to church ... show Christ's love to them ... encourage them to make Him the center of their lives. This isn't an easy situation but see it as an opportunity to help your neighbors, not to tear them down.