K.I.
I too, wouldn't worry. They like the sensation/feeling and I think it's pretty natural. You could just start taking him to his room with his "lovey" and allow him some time in private. He is awful little and I am not sure the "touching yourself is okay, just in private" conversation will work for him just yet...untill then, I say remove him to his room and don't worry.
My 4 yr old discovered himself last year and his hands are always on that thing...like he's gonna loose it or something:)