Your description indicates that your son may be over-stimulated, and that unwittingly you may be confusing him re: the nature of your relationship with him. It would be better for him if you stopped taking him to bed with you, and instead insist on his falling asleep by himself in his bed and remaining there through the night. At some point it will be necessary to stop your current practice, so you may as well do it now.
Children this age do not focus much attention on masturbation, though it does certainly occur. I wonder if perhaps he's turning to it too much. Ejaculation will occur only as he enters puberty. I think you are probably overstating the sexual aspect of his development - he's only 7.
Closeness between a parent and a child of this age occurs as a result of the daily routines of parenting (focusing on meeting a child's basic needs), as well as through shared activities.
Re: your son's urination, be sure to check with his pediatrician. The opening at the end of the penis is not always perfectly centered, and there is a wide spectrum of normal in this regard. But it would be good to call this to the attention of his doctor.
Thank you Doctor. You made my eyebrow raise with the "taking to bed" statement. Usually he will fall asleep on the sofa or bed while we are all watching tv, etc... However I do understand your point. We did discuss the penis issue just after he was toilet trained. His doc said there was nothing we could do. I did not know he was really aware of it until recently as a result of his question. Phew on the semen question we have time. The stimuating issue I suppose you confirmed. My husband and I will discuss this tonite. Thank you very much. It is nice to get a doctors perspective on such a sensitive topic.