It might just be a distinction and don't worry about it when kids are little about that age they usually have to pee every 15 minutes. DO NOT LISTEN TO PEOPLE SAYING HE SHOULD NOT BE SHY ABOUT BEING EXAMINED IT IS SOMETHING TO BE SHY ABOUT IT, IT WILL MAKE HIM FEEL UNCOMFORTABLE. BECAUSE IT IS BAD ENOUGH THAT THEY HAD TO CIRCUMSIZE HIM!
Look bsk27, I have a son who is 12 and he keeps talking about "Family Life." Your grandson is going to go to that really soon, and they P.E. teachers will be discussing their "private parts" in generaly. There are a lot of things that boys do at that age and it normal for him to be doing that. He now starting to notice which means that he is getting to the stage of pueberty. So, don't get to worried about it and I don't think he would need to be seen in his "area."
Your son should not be so shy about being examined. Studies show this could lead to serious problems in emotional development during puberty, and you are lucky to discover this at an age where it could be rectified quickly. Here is what you should do:
1. Let your son stay around the house naked a bit, and let him sleep without boxers. This would let him get more accustomed to being undressed.
2. Let him have his next doctor's check-up fully undressed, even though his penis may not be examined at that visit.
3. I would also recommend you apply petroleum jelly to his circumcised penis everyday, to reduce risk of infection.
4. Prepare for him to have his penis examined. This is crucial to ensure nothing is wrong seriously, as infections to circumcised penises could be dangerous.
I remember hearsing from a psychologist that holding your penis like that is a sign of insecurity. I am not sure about the 'discomfort' side of it when you consider the amount of circumcised people in the World. Your Grandson, at his age, is far, far too young to be shy and embarrassed by his penis. I suggest you and his 'closest' family help make him feel as secure as can be. He's only seven, I am sure that even when he reaches adult girth, his penis will proportionately grow longer too.
It's sad in this day and age when such young innocents have a full life, even years ahead of them, yet they are burdened by such insecurities. Perhaps you can teach him, with the ultimate goal of going swimming in public with trunks, and keep doing this to help build his confidence.