If the dog cannot walk and is bleeding, I would advise you to inform your neighbour immediately so they can take the dog to the vet at once.
Regardless of whether the bone was especially made for dogs or not, the dog appears to have had a reaction to it, and it sounds as though it could be serious and require immediate attention.
It is possible for bones to splinter and perforate the dog internally, as the splinter makes its way through the digestion tract. This could account for the bleeding, which in itself may not be too dangerous, but the fact that the dog cannot walk sounds more alarming.
There may be a number of explanations for this, but I would suggest that the dog will need a thorough examination by a vet to rule out internal damage. I am not sure how this could be related to consuming the bone, but hopefully the vet will be able to offer an explanation!
As for breaking the news to your neighbour.. I can imagine it will be daunting, but please bear in mind that they will be a lot more distressed if something serious happens to their dog, and you held back from alerting them.
I'm sure they will recognise that you have done nothing wrong, at that if anyone is to blame, it sounds like it could be the manufacturer of the dog treat!