You guys are asking such great questions - my DD is only 1 yr old and I'm already thinking about this, because I know it's something I want to handle as well as I can.
Many of you have asked how to handle explaining that it's ok and healthy for a child to explore themselves. This is just my opinion, but between the "Healthy Child Sexual Development" workshops I've been to and a few other trainings, my approach is mostly that there is no need to SAY anything about what's ok and healthy. It is all about how I REACT if I see something that looks like exploration. I will try to not react at all, unless she's doing it in public or in front of people in which case the whole "That's something only you can do to yourself and you can only do it in private" conversation has to happen.
Also - and this is an important child abuse prevention tactic and parental bonding tactic in general - I plan to tell her from the age she can speak that she can always tell me ANYTHING. No matter what I will always love her, and I will always be glad she was honest. That's making no promises about how else I might react depending on what she might tell me, but I know I can promise that I'll always love her and always want to keep her safe and happy.
Saying this and then practicing it by, if she asks me at (what I consider) too young an age "What is a penis?" or points at herself and asks what her vagina is for, no matter how much I want to scream "Penises and Vaginas don't exist until you're 35 yrs old so don't ask!!!", I will do my best to stay totally calm and ask her where she heard the word, and then answer her questions. And ask her if she has any others. Staying calm and not freaking out is so important, so your child doesn't feel like they've done something wrong and is then afraid to tell you or ask you anything else.
As for playing with other children, you have control for the most part over what age kids your kids play with. If you regularly have your child around older or younger kids, you just need to keep a very watchful eye on them in general. Re: sexual play (like doctor or touching or anything else), I just think that it's important to do your best to know what's going on - kids shouldn't play in rooms with closed doors, they shouldn't be out of your sight for expended periods of time. If you do this well it should address concerns about older kids being sexual with younger.
But if you regularly leave your child with people where you aren't there and don't know the level of supervision, you need to be VERY clear with whoever the caretaker/responsible adult is about your level of supervision expectation, then just regularly check in with your child about what they're playing, what they think of the other kids, why they like/don't like particular kids, and LISTEN. You'll know if the play sounds fine and healthy and your child doesn't seem bothered by anything, or if your child seems uncomfortable or upset and then you can explore that further.
Creating a relationship with your child where they feel they can ask you/tell you anything and you will love them no matter what and not punish them for curiosity, combined with being close supervision and listening to your child, should help them to develop sexually healthy while also not getting into inappropriate situations with other children.
Oh, sorry, one more thing... if you find you do have a child who is sexually curious early, you do have a responsibility to be more watchful when your child is with other children. Your child may be innocent and curious and all that is fine with you, but the moment your child starts touching other children (especially younger OR older children) a HUGE range of negative consequences can occur, even though neither you nor your child meant any harm. You don't even want to go there. So if you know your child is very sexually curious and exploratory, you really need to watch and communicate with them that it's not ok to touch other kids or let other kids touch them in their privates. You can play Doctor or Nurse without getting naked or touching privates specifically, and I don't see any reason to let kids touch each other's privates on purpose (as opposed to young kids bathing togheter and poking each other, etc).