My DS is often touching/enjoying his penis. I do not, however, term it masterbating. For me, masterbating is touching with sexual intent, ie, to orgasm. This does not fit with a small child. They are exploring. They will also explore picking their noses. Same deal.
Now, we're potty learning and are also almost always nakey-bum. And he grabs himself right before he pees. So if him touching himself is bothering me, I'll ask him "Do you need to pee? No? Oh, when I saw you holding your penis I thought maybe you needed to pee." At that, he usually lets go of it for a little while. Now, I have no idea if this is considered correct or not, but I figure it's better than guilting him or freaking out on him. We have tried underwear, but he still pees in them.
As for wearing more clothes as it gets colder, I just offer him clothes more often. "Do you want to wear a shirt or go naked?" He can choose for himself when he's cold enough to put more clothes on!
Does this ever go away? Um, good question! It's considered a self-soothing thing. Maybe more one on one time with y'all would decrease the frequency? More likely she's just found a new toy that goes with her everywhere! The fascination with any new toy has to die down eventually, right?
Sorry it's stressful for you right now!