Not knowing either child or lifestyles, My natural reaction is that your son was curious about the opposite sex & has curiosity about that. With that said, I really would have to have seen them. My two are 1 yr apart, girl & boy. They are more educated than same sex kids or single kid families are when it comes to naked bodies and it makes a big difference. We had a birthday party here & a little girl was using the bathroom & yelled out that she needed help cuz she droppd the toilet paper. My son went to her aid & thought nothing of her sitting there, just handed her the paper & walked out. Another boy who only has brothers was quite curious about it & asked if she was pooping. I was trying to get to the door to close it, but he proceeded to go in and ask why she was sitting down. she called him silly & explained girls sit. He obviously had no idea & reached over to lift her shirt to get a better look. I finally got through the dozen kids & shood him out & got her back on track & shut the door. I then took the boy to his mom for a little bit of sex ed. Mom hadn't realized the extent of his curiosity, but her being the only girl in the family was very private about it all. Needless to say, things could be innocent. I was explored by my cousin who was a boy when I was a kid & i really didn't think anything of it being as little as I was, but he was being sexually abused & was doing what had been done to him. So it could go the other way as well. I say knowledge is power and that is why I allowed both my kids to see each other and make it very natural as I feel God intended. so I know my son if in this situation should not have curiosity like this & I would then be talking to find out his motives or vice versa. If your sons curiosity isn't satisfied, meaning he still has questions, he will continue to take advantage of any opportunity given until he gets his questions answered. So I would educate him on the differences during your "it is not appropriate to touch private areas or let them be touched" talk.
this does make me think of a joke: kid playing with friends walks in & asks mom what is it called when two people sleep in the same room & one is on top of the other? Mom replies simply & honestly, "sexual intercourse."
Kid says ok & goes back out to play. a few minutes later, kid comes back in & says, mom it isn't called sexual intercourse. It's called bunk beds & Jimmy's mom wants to talk with you....
so, I don't know if your son should have that strong of curiosity or not at 5, that depends on your family, but I can tell you that the odds of the 2 yr old girl being the instigator in "showing butts" would really surprise me & I could see where your neighbor was taken aback. Probably more so since it all took place on her watch! You've gotten some good advise & I think this is just an uncomfortable topic & thus just feels strained. I wouldn't over judge either way unless this begins to be a re-occuring problem, but now that your aware there is a problem, you should be able to neutralize it. she really should have mentioned it the first time it happened IMO. Best of luck.