“Playing doctor” and “I’ll show you mine if you show me yours” are far different from this. K isn’t predatory, obviously, but I remember the relatively normal messing around I did as a kid and it’s not even within the same realm as asking another kid to perform a sex act. In fact, I distinctly remember that when I was that age, I didn’t know what oral sex was - it was later than that when I ran into a reference to it in a medical book and had to ask my mother. She wasn’t comfortable explaning it, but she did.
Aside from the issue of whether it’s normal or not for kids of ages that divergent to play together, an 8-year-old shouldn’t be unsupervised for any period of time anyway - much less with a younger kid in tow. Playing in the yard, as long as mom and dad are near the windows, is fine, but if he’s got the freedom to pull down his pants without getting caught, that’s not great on its own. If one of them got injured, the other probably wouldn’t have a clue how to deal with it.
That really sounds a lot like stories I’ve heard about the behavior of kids who’ve been molested. My mother is a social worker, and one of the facilities she worked in was a group home-ish place for children with serious behavior problems. She’s told me about some of what went on there, and when a kid asked another kid to perform a sexual act, it was a clear signal that the kid had been molested.
I would say not to isolate K at all; if he wants to play at your house (while WELL-SUPERVISED) that’s not bad, and if he trusts you enough, he might even eventually tell you if there is some sort of problem. But kids who have been molested very commonly reinact it with other kids, and you have to be careful here. Please, for your own child’s sake.