How can I block neighboring wireless networks?

You've already taken the first step... enabling some form of encryption. WEP would be good, but WPA, as you've selected, is better still. WEP was found to be more easily crack-able, and given that your neighbor appears to be at least somewhat technically savvy, and perhaps has bad intentions, using WPA is the better choice.

The next step I would take would be to make sure you connect only to your preferred connections. Again, it sounds like you may already have done this. In Control Panel, Network Connections, right click on your Wireless Network Connection and click on Properties:

Click on the Wireless Networks tab:

Scan through the Preferred Networks list. For each network listed that you don't recognize or you know should not be trusted, click on it and then click on the Remove button.

Now click on the Advanced button:

Make sure that "Access Point (Infrastructure) networks only" is selected, and that "Automatically connect to non-preferred networks" is unchecked.

Now, at this point I'm assuming that a network is "identified" by both its name and its encryption status. So that if your network, with WPA enabled, is on your preferred list, then you won't automatically connect to your neighbor's unprotected network of the same name if yours is down. Obviously that's easy to test.

But there's one last thing you didn't mention, that while not absolutely secure, could be an additional level of protection, and if broached would confirm your neighbor's bad intentions.

Configure your access point to stop broadcasting the SSID (aka network name), and then change the SSID. Unfortunately, exactly how this is done depends on your specific access point.

The down side here is that Windows won't automatically detect your network ... you'll have to configure it manually in the Wireless Networks Tab shown above. Just hit the Add button and you'll be able to enter the SSID by hand:

It also means that your neighbor won't see your new network name - at least not easily. And that's why I say it's not absolutely secure. If your neighbor is technically savvy enough to sniff your wireless packets, the SSID can still be viewed. But in that case, if another open access point appears with your new "hidden" network name, you'll know that your neighbor is up to no good.