If they are paving over half their yard, wouldn't they need a permit from the township to do so? I am guess that your town probably wouldn't give them the permission to pave half their yard, so they likely don't have a permit. The best thing might be to report it to your town (perhaps the zoning department?) and see if they will deal with the bad neighbors for you.

My opinion - It's hard to quantify exactly, but street appeal matters to most buyers But lots of things matter more - like location, price, and your owns home appeal. Most buyers will also consider the neighborhood as a whole in addition to the lot next door. Bottom line, it's matters a little but won't seriously devalue your house at the end of the day.