Well. You could try to plan out the time they are together in terms of having family things to do. Get some craft stuff and do crafts, a family movie, family games, etc. They may need more structure to their time together. Even if it were a boy and a girl of those same ages kissing, it is still inappropriate. But you have to stay calm about it. Have you tried sitting down with your child and just talking about it calmly? What does she say? Who instigated it and what does it mean to her? I think I'd start with some good mother daughter heart to heart talks. And then talk to the 8 year old's father about doing the same with his daughter. But in the mean time, keep them busy doing "stuff"!
I'd go talk to a counselor that specializes in family or child counseling. Go yourself, talk the whole thing over, get advice. Getting mad and putting someone in time out is not going to change things much.