D..
As I read your post, I am thinking of a movie I watched last night with Colin Firth. I missed the beginning of it, but enjoyed what I saw. He was an inventor or a sort, had several children, and lived in a great house (England) with lots of servants. His son (the narrator of the story) was very intelligent and asked his father lots of questions. However, his dad's answers were always a bit "out there", without giving a whole lot of practical detail. So the boy started pulling down books in the library in order to figure out what was what.
He read a chapter in a book about prostitution. In his narrating, he said that it was the most interesting reading he had ever done at that point in his life. At the dinner table that night, in front of the entire family, the minister, and friends, he proceeded to tell everyone that his father and his friends should take advantage of the ministrations of prostitutes, along with an entire explanation from the book.
You can imagine the shock and silence at the table. The father asked him to come with him to the library. The son asked what he said that was wrong. All of a sudden, the minister started to laugh. Then everyone laughed. (The grandmother started to cry during her laughter because her husband had died and she missed him, but that's another part of the story. They had to carry her out.)
The point I'm making with this extreme example is that even though you want to nurture an environment where sex is considered normal and biological, and you don't want them to feel that there's something wrong with talking about it EVER, you have to put the brakes on the when and where of these discussions. Children have to be taught discretion. They really don't HAVE any discretion unless you teach it to them. Think of it this way. Let's say you let the 12 year old boy continue the discussion. One of the other kids goes home and tells her mom all about this 12 year old boy's discussion. You get a phone call from an irate mother asking why a teenage boy is talking to her child about sex (she'll ignore that he's still a year away from being 13.) She will act like he's a predator or something. Then you'll be embarrassed and upset, she will call the boy's mother, and possibly the other kids' moms.
You don't need this in your life.
So, curtail sexual discussions between children. They don't have the understanding or discretion to talk about it in the proper context. You do, and can discuss it with your own kids, and let the other kids' moms do the discussing with them.
I will say that if I overheard this same 12 year old bringing up sex again after you told him not to, there would be trouble and I wouldn't have him over at my house again... that would mean that he has a fixation on it and it would be a huge red flag to me...
Dawn