It sounds like natural sexual development to me; in my day, we use to play "doctor" (w-a-a-a-y back there in the 1950's when doctors would still come to your house with their black bag). Be careful not to make sex and one's body "evil" or "bad"!

http://www.fairfaxcounty.gov/dfs/chi...orchildren.htm

http://www.selfhelpmagazine.com/arti...exual_behavior

http://askdrrobert.dr-robert.com/incest2.html