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There is some water leakage in my stone basement on my neighbor's side (which is otherwise, very dry for a stone basement).

Right Side is Neighbor's House, Left mine

As you can see from picture, the side of our house is loose stone (may be difficult to see). A friend of mine has put a concrete "curb" next to his foundation to cause his neighbor's insufficient gutter's water to flow away from his stone foundation. I'm guessing that the loose gravel keeps me from using this solution for my problem.

What can I do to my house to resolve the neighbor's 'waterfall gutter' situation in my basement?

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I guess the 'repair' solution for the neighbor's house didn't pan out.

You can use your friend's solution, you are just limited by how much room you have to the property line. You just excavate to the frost line, attach an waterproof isolation layer to the house and extend it above the new pad. Place some curbing forms and pour concrete.

Another method (even more expensive) is an exterior french drain with a full wall membrane

The interior french drain/sump pump combo will also work. Unfortunately, you'll need to trench all 4 exterior walls with this method.

Recently, others on the site have used wall coatings (Dry-loc sealer) to stop small amounts of water intrusion. YMMV.

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    +1 for the full wall membrane and exterior french drain. That's the best solution. Unfortunately it's probably one of the more expensive ones, you need somewhere for the water to drain, you don't have much room to do it here, and it puts the foundations at risk when you temporarily remove the soil. – BMitch Jul 10 '13 at 20:09

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