I probably would not want my daughter being friends with that little girl either but here are some things to think about. 1. the girl probably doesnt know what sex is either but knows the word. she probably got it off tv and just wanted to sound "cool". she PROBABLY also fibbed about the boyfriend and having kissed him. I used to lie when I was younger too. 8 is definitely young for this, but the girl may not know what she is saying. Someone needs to explain to her that it is not an appropiate thing to say.
Secondly, how exactly would you end the friendship? They go to school together. She can easily still be friends with her at school. They've been friends for a couple of years, you said? Good friendships are hard to break and not necessarily up to you(once they reach school age).
Instead,I think what you should do is talk to your daughter about what is appropriate and what isnt. You don't necessarily have to go into "sex", you can use the word "kissing" instead of sex.
We would all like to keep our daughters innocent but chances are, they are going to find out about sex before you give them the "talk" when you think they're ready. Ending the friendship may not be the answer b/c that girl may not be the only bad influence. Your daughter will come into contact with lots of other people who may do or say things you would never want your daughter exposed to.
So, I think the best thing you can do is to continue to teach your daughter good values and morals. If this other little girl really is as bad as you think,your daughter will eventually part ways with her on her own.
Here is an excerpt from a very good article on the subject you may find helpful:
What's a parent to do when you don't like your child's friends? This situation is bound to arise on occasion because you and your child have different perceptions. Where you see a rude child, your daughter sees a play partner who always has lots of good ideas. Where you detect rampant materialism, your son simply sees someone who shares an interest in stamp collecting or tree climbing.
In extreme situations, of course, you have to intervene. If your son's friend has a great interest in fire and persists in experimenting in your basement, you clearly need to act. If a girl often bullies your daughter or calls her hurtful names, you need to put a stop to that "friendship." But more often the decision will be less straightforward. You understand that your child needs to be able to pick his own friends, but you don't want those friends to be bad influences. Here are some things to keep in mind as you find the balance that's right for you:
The younger your child is, the more control you have over his choice of playmates. Once a child is in school, it becomes less and less practical to make enforceable rules about who his friends can be. So, to a certain extent, you have to accept that the choice is somewhat out of your hands; you have to trust your child.
Although peer groups often exert a lot of influence on how a child dresses or talks, a child's core values are much more strongly shaped by what goes on at home. In particular, they learn the values of kindness and not hurting others in their relationships with parents. I think that it is unlikely that a peer group changes those core values--children tend to choose friends who share their values, if not their outward style.
One alternative to a complete ban on a friendship is to set rules about how the friends can interact. For example, you can make sure that your very active son and his equally rambunctious friend only play together outside, when there is a grownup present.
You can help your child think about the behaviors of her friends. If you notice rudeness or materialism, you can take the opportunity to let your son know how you feel. If a child habitually treats your daughter badly, criticizing or ridiculing her and eroding her self-esteem, you can help her realize that maybe she doesn't have a real friend there. Children really do listen to their parents' opinions on a host of matters.
If you are extremely irritated by the behavior of a particular friend, chances are that your child also is aware of these negative aspects of her personality. Sometimes children need help saying "no." If you've decided that a certain child is truly a bad influence, it's best to give a simple, honest explanation. You might say, for example, "I'm not so sure about Suzy anymore because she always tries to get you to do things that you know are off-limits or says things that are inappropriate. Maybe she shouldn't come over for a little while"
You can increase the chances that your child will choose friends you approve of by participating in community institutions, such as religious or social organizations, where your child is likely to meet children from families who share your values.