I wouldn't be worried, my son is 4 and he plays with hisself and I told him that was something he needed to do in private. I think you handled it well by telling him it wasn't appropriate to let the dog do that. Your son just didn't understand that it was inappropriate just like when a dog licks your face he probally thought it was the same thing
Just a quick note to say hi!
couldn't have handled it better myself- you stayed rational and unemotional- probably never needs to be discussed again- sounds like a sweet smart kid- and that truthful at age 3- when you ask why they did something (at age 3) don't be surprised at all with the answer you get- an excellent answer from him really if you think about it- dang- he is smart but I would not worry of anything sexual from any of this- it was a feeling only and he is no where close to having a developed conscience- even if he does it again. Maybe won't -- Hugs mom and dad