Obviously everyone has different opinions about this matter to both extremes. (I think Margie's was right on personally.) I grew up with a very religious minded mother who portrayed anything sexual to be dirty and naughty and it left me very confused and scared about anything related to it throughout my childhood. I didn't feel comfortable asking questions about it and therefore, never had any guidance, which I really felt I needed at many different stages of my early life. In my teens, I sought out information from other resources and finally started to feel comfortable, though I know most kids don't think about doing that or don't know how to go about it.
I definitely think it should be taught as a NORMAL and healthy thing as long as the communication between the parent(s) and child(ren) is open, both to make sure that there isn't something more going on and so that the child understands the boundaries.
I have two boys who both discovered their pee pee's early on when changing their diapers, and they'd proudly yell out "pee pee!" while pointing at it (as they did with other parts of their bodies). That continue to discovering it further and playing during bath time. Despite comments otherwise, it's definitely normal and natural to explore your own body and what feels good, even when you're so little. As for how they learned it...how do any of us learn about it? By exploring! (Hopefully anyway.)
I think you're on the right track with how you're handling it at home and agree that you should discuss it with her teacher further to get on the same page about how to handle it.