Go talk to the city and learn what they do about building variances... the procedure to protest and exactly what the setbacks are. Hopefully you won't be surprised to discover that their property only requires a 3 ft setback, due to a zoning or position quirk.
What you described happens a lot around here, but if the neighbors don't write a letter or attend the hearing, the variance is usually allowed and building proceeds.
First, (today if you can).. if this is early in their plans, I would let them know that you have concerns about the addition being so close to your home and windows... nicely. Many people don't realize or think about neighbors and will modify the plans, even slightly, to accomodate if they are not set yet.
If it is within the current zoning bylaw, there is not a lot you can do, other than write a letter to city with your concerns, once the plans are known or an "illegal" build is taking place.