From what i've heard it's natural, most girls go through it and there is no set age DD1 knows it tickles and every now and then i see her touching it (when i change her nappy etc).
DP's niece was about 4 and her mum used to have to put a blanket over the pram and let her 'finish' what she was doing in private, if she didn't she just kept putting her hands down her pants.

I guess it's a new sensation and kids at that age explore a lot, i would just ignore it or distract her without drawing attention to what she's doing, if she's making it sore at all then i would maybe check with the MCHN or Dr and see if they have any suggestions.

GL, it does make you feel very uneasy though doesn't it.