You are ascribing adult sexual behavior to a four-year old. That is where you are wrong. She is not indulging in adult sexual behavior, but the touchy-feely curiosity of a very young child. However, you don't want her to display herself or her little friends since this could cause many problems socially. I would tell her that "ladies" don't do that. And make sure she keeps her underwear on.
this is an article I found when searching for answers to a similar problem (except mine just turned 8) and just thought Id share
http://www.sfgate.com/cgi-bin/blogs/sfmoms/detail?entry_id=34323
Well you may think it's wrong but it's not it is perfectly normal she is very young she doesn't know if it's wrong to like a girl she just thinks that there pretty and likes them i did it when i was young out 31/3 so it's normal I guarantee you every thing is normal just keep what you were doing!!
i came to this website because I think my 3 year old son his masterbating. but with his anus! I also have a daughter who is 61/2 and when I ask her about her wiggling, she says the same thing 'it tickles". She's been doing this since she was 3. I just pretend like it's no big deal and swiftly tell her to do this by herself and I move on with what were doing. There has been no problem at all, so don't worry, its all completely normal, now my son on the otherhand...HA!
I came on this board searching because my daughter, who is also 4, has been masturbating or "wiggling because it tickles" as she calls it when I ask her about it. I found that it is normal for this to be going on and normal for children to want to look and compare with other boys/girls. Have you talked with her about it and had the conversation of who can touch her and so forth.
I know it is strange to see our little girls doing this, I haven't even spoken to my husband about it yet because he is going to have a hard time dealing more than me. LOL
Good luck.