Hi Mama Duck,
There are a number of things at play in this situation, and I think they each need to be addressesd individually and together.
First, your friends and their child should seek some support services and probably a psych assessment for their child. There should be agencies in your community (often grant funded) who specifically address abuse issues. Services should be made available either pro bono or on a sliding scale. Play therapy is particularly beneficial in helping young children process this kind of violation. The parents may need some counseling, too. Aso, we use book titled "My Very Own Book About Me." to address these issues with girls, but I don't know if it is really appropriate for a pre schooler. Typically ist is used w/ elemetary aged children - let me know if you need a copy sent. PM me.
The child who did the molesting is probably experiencing some type of abuse herself. As a social worker who interned clinically with sexually abused girls, I can assure you that most of those who acted out on another younger, smaller child had been abused themselves. That girl is going to probably need some help herself. Now, families often are in a whole lot of denial about what may be going on, so how do you approach that...well, when your friends take their child in to see someone (be it a pediatrician, social worker, therapist, etc) that professional will more than likely call the abuse registry. Which will then need to investigate the case. This is how the system works here and I am asuming it works similarly across the Country.
Okay, so, your friends also need to be prepared for having social service entities (and perhaps some legal ones) involved in their lives. Not an easy thing to swallow, but probably necessary to protect your friend's child and alsoto get help for the offending child.
I am so sorry. This is a painful situation to be involved in, but it is common and there is a lot of support out there!