There's a whole bunch of issues, which boil down to "your right to enjoy your property doesn't trump my right to enjoy mine." The naked child is causing a multitude of issues for the OP:
(1) being uncomfortable with an unrelated naked child in her sight, due to societal issues about pedophilia and assigning blame
(2) her husband not doing the yardwork due to (1)
(3) her dog being stressed out by the child climbing/shaking the fence
(4) worry about her dog snapping at the child due to (3) and causing disproportionate damage due to the child being naked
(5) worry about (5) causing her dog to be picked up by animal control or put down
(6) worry about (5) or (1) causing her to be accused or sued
So she doesn't use her yard at all in order to avoid all of these issues, which stem from the neighbors allowing their child to run around naked in public, which is not a societal norm. Even completely ignoring the legal/societal aspects of noticing a blatantly naked child, there are plenty of other issues that would be solved by the child wearing underpants.
By etiquette, she should speak to her neighbor first and let her know that the child is quite visible, and perhaps she should have him wear underpants. Next would be talking to her landlord about restriction of enjoyment of the property. Anything beyond that would be into legal territory, IMO, which is not our territory.