I agree with Iris, take action for the little boy's sake. If he is being abused, he needs protection, not for everyone to look the other way. I have to hope the teacher has already said something to the parents of the boy, but if not, you might need the teacher in on the conversation so they will believe you.
Also, I would put my daughter into a different preschool. Keep her away from the little boy.
It sounds to me as if the little boy has been sexually abused and is acting out what is being done to him at home. Stand up and be the bigger person and say something before it destroys this little boy.
I am sorry your daughter is having to go through this.