A: Down on the farm, most children had ample opportunity to observe animals in sexual acts--and the behavior of ordinary cats and dogs even in today's suburbs is sufficient to provide most children of 5 or 8 with a notion of what sexual behavior might be like. So almost all children, even children raised in homes with a high degree of personal modesty about these matters, have caught on to the idea of sexual contacts between adults--and have imitated these contacts in their childish play since the beginning of time. This curiosity and imitation is not necessarily abnormal or dangerous.
This is very different from the behavior of children who have been exposed to inappropriate sexuality, including sexually abused children. These youngsters often appear preoccupied with sex in a compulsive and obsessive fashion.
The situation you describe is not unusual, and it is not easy to tell right away what it means. I think that you can approach your friend and describe the "dry humping" that you witnessed, but I don't think you need to go farther than sharing this information with the other child's parent. You can say that you were a bit disturbed to observe this, and ask your friend for her own opinion. You might then just let it go. As your children grow, they will meet many other youngsters from many types of homes--you can't hope to cover their eyes and ears completely! That wouldn't be realistic or necessary.
If your own child continues to seem preoccupied with sexual matters, you might (in a very kind way!) ask a few more open-ended questions of your child. If your child seems happy and otherwise does not worry you, I think you might relax about this one. If this continues to trouble you, you might consult a mental health professional or your family doctor.