C.M.
S.-
I think it's COMPLETELY normal for the kids to be doing what they are doing! Some kids younger than them experiment with their clothes off...although they don't really know what they are doing. They just know what they've seen, heard on TV, movies and from family and friends.
I would not be concerned or think that warrants any kind of punishment. I would talk with them and tell them that they have to stay out from under the covers and it's okay to kiss someone you like on the cheek but if you want to be boyfriend/girlfriend, you have to be older (give them that excuse if you dont' want them kissing for real) and tell them when they are older they can be bf/gf.
I had a boyfriend from the time I was five years old! Granted we never kissed, but I do remember being 7/8 and having neighbor kids showing off their 'privates' to anyone who would look or wanting to kiss boys to see what it feels like.