I definitely agree with TOM - what's the problem here? I kiss my aunt and my uncle when I see them - is this sexual? If the kids were playing at being married adults, and doing what they see married adults do, that's not sexual, that's play-acting. My 7 year old son's best friend is a girl, and he's kissed her plenty of times - he loves her to bits, but there's nothing sexual about it.
Unless there was actual groping, or inappropriate touching involved, I really think that reacting in any way at all is potentially harmful to the kids, and if there was any, the first thing to worry about is where did they get the idea? What have they been exposed to?
By all means start discussing inappropriate touching - that should happen in any case - but it should be related to something that very possibly is completely innocent. I agree that the line 'they knew it was wrong' seems to me that the adults concerned are projecting their own hangups on to the situation.