In my family, I guess we are a little more open about nudity. My kids are almost 4 son & 5 yr daughter. My kids have bathed together since infancy. i have a huge garden tub & I have bathed with them on occaision and when we have had time crunches, hubby has taken both in the shower with him while I get my makeup & hair done. We are all in the bathroom together & nudity is just how God made us. Now my daughter knows that little boys have little tee tees & big boys have big tee tees & same for son with girls & women. We have let them know that we do not touch each others private areas as the pee pee & poo have germs and that is why we use paper to wipe and why we wash our hands afterwards. This seems to have satisfied their curiosity and has discouraged them touching. I think the way you have been dealing with her curiosity is making it forbidden fruit and thus she wants to know why more than ever. Had I caught my daughter in same situation, I would have said something to the effect of, "guys, ya'll know this isn't appropriate, now both of you wash your hands and apologize for not giving our friend his privacy. I would have left it at that with the kids & I would talk with neighbor & let her know. Then she could perhaps speak her kids and let them know they shouldn't show their privates or let people touch them. Then you can instruct yours the same. My kids have been instructed to scream as loud as they can & get to a grown up right away! I have told them that no kids or grown ups should touch them there ever except a doctor to examine them or me or granny to wash or apply medicines. So far no problems and at playgroup when a few boys just dropped trow & started peeing on a tree as little boys are known to do, my daughter thought nothing of it. No trauma or shock, just the usual girly statement " that is disgusting!" which is what i usually say to son when he does it, and he laughs as he knows that only boys can get away with that and girls get to wear hair bows, finger nail polish, & jewelry. So, we accept the differences, celebrate them kinda, and just keep it matter of fact. Hope this helps shed a different view on a touchy subject.