Wow, trysten...you might be right about the molestation issue. It's been my understanding that children don't often play with genitalia before adolescence when hormones kick in...unless someone has taught them to make "privates' a focus.
I would definitely look into that possibility. However, if it turns out to be completely innocent, just impart the "privacy" time activity philosophy, which you seem to have done.
But I'd be VERY worried until a doctor checks her for abuse.