This is an old thread....
I think you did just fine. Like the others have said, don't make a big deal of it. But you should let him know that it shouldn't be done in public. As long as it's not done in public, there is no harm. If it is disturbing for you to watch, then ask him to only do this in private. But then you need to make sure he has sufficient privacy to make this possible. Just typical boy behavior.
I agree I would let it go. My son plays with him self everytime he is naked or just in undies. I just say remember mommy doesn't need to see that, you do that in private, and he will stop and go back to doing something else.
No you didnt say too much, but let it go now and dont make any other issue of it, he will only be consumed if it is made an issue ,let it alone he is a little young and so was your son to be 'consumed by it' so if you dont say or do anything it may lessen, as long as he isnt copying from anyone its pretty normal.