Here is some expert guidance, all:
http://www.askdrsears.com/topics/parenting/child-rearing-and-development/sexuality/genital-play-whats-normal-whats-not
What’s normal? General Curiosity. Children are curious, especially about differences, and what could be more fascinating than different genitals? Understand this situation for what it is—normal childhood curiosity at work. It needs sensitive understanding to prevent it from reoccurring. Get behind the eyes of your child. He wants to learn what the other sex looks and feels like. The child is more interested in satisfying curiosity than in sexual arousal. You can tell innocent sexual curiosity from deviant sexual behavior by these characteristics. Innocent acts are occurring when:
Children are young (under age seven), close in age, and know each other.
There is mutual agreement; one child is not forcing the other.
There is usually a game-like atmosphere: playing “doctor” or “I’ll show you mine if you show me yours.”
Secrecy is part of the game. As if sensing their parents would disapprove, children retreat into a bedroom, garage, or a private place. (This is true for deviant acts as well.)
When sex play is not normal. How do you tell when the line has been crossed from innocent, childish curiosity that needs to be handled with understanding and explanations into abnormal behavior that needs serious attention? It’s important for parents to know how to tell when one child is victimizing another. Here are suspicious signs:
One child entices or forces the other into sex play.
There is an age difference of more than three years between children.
The sex play is not appropriate: for example, oral-genital contact between a six-year-old and a three-year-old.
The event occurs more than once despite your careful intervention and supervision. These are grounds to protect your child from another by terminating the friendship. If the sex play is between siblings, seek professional help.
If your child has been threatened to keep it a secret.