i would venture to guess that neil probably does know how to read music. however, as for whether he actually writes it down in perfect technical form for stuff he writes, i don't know. i'd say he probably might write something skeleton down, and go by ear from there. neil likes to improv a ton, no two live versions of songs are the same. so for "playing by ear," yeah, i'd say so, to an extent.
i dunno, neil (and tim for that matter) just strikes me as the type that could definitely hold his own if given a sheet of music and told to play it.
as someone who plays guitar and doesn't know how to read music, neil's ability on the guitar really impresses me. no, he's not the best guitar player in the world - far from it, but he really knows his way around the instrument. transferring songs like fall at your feet and ddio to capo 3rd fret and having it sound killer...well that's pretty impressive to me.
or maybe i'm just easy to impress