Tough situation? I have two kids and I would be more concerned about them than my dog (I have a sheltie). Those pit?s can be very dangerous with children.
I would have to say screw this guy, and definitely make him pay your vet bill! Why would you even consider paying it, when all your dog was doing was chill?in on his chain? You own him? you hold all the cards. You?re being cool about the whole thing so far, but I would definitely lay down the law at this point: 1. He pays vet bills. 2. Time to find Mr. Friendly a new home or put him down. Another thing is the Insurance??? If the law in your state is that he must have insurance for his pit bull (good law!), he better damn well have insurance!!! Is he above the law? The scary part is that the dog is clearly dangerous.
I know he?s your bud, but enough is enough? his dog will eventually kill your dog. And God forbid that pit ever seeing a child as a threat.
good luck man!