If the systematic behavior management plan does not yield some pretty good results after about six weeks, I would arrange an evaluation with a pediatric mental health professional. His thought processes are quite unusal for a child his age and this may portend some emotional disturbaance.
Dear Dr. Kennedy. I'll check the site. By the way my nephew often says hilarious things, he says that his dream is to become pope when he gets older. He has too many problems with her pre school teachers (one in particular), he has told us many times that she's crazy and that she wants to destroy him. One day he told her she should stay at home cooking and cleaning instead of working as a teacher, he has told us privately that I should marry her and make her my maid. His parents have told him many times he is not to show his private parts to anybody, that they belong to him only. However, he says he shows it to people because "it scares them off". Out of these things, he seems to be a very normal kid.
He requires a systematic behavior management program and such a program will likely result in quick improvement. For a relaible resource for such a program, his parents should read (and follow) Lynn Clark's SOS Help for Parents (see www.sosprograms.com).