He has recently been playing with some older boys in the neighborhood (fifth grade), but I am not seeing any of this at home! Is this behavior normal? Is the teacher making too much out of this?
Teachers today must respond quickly to behaviors like this, since most school districts have initiated policies on sexual harassment and teachers are responsible for ensuring that children are safe from unwanted talk and advances. It concerns me that this began around the time your son started playing with the older boys in your neighborhood. There is a tremendous difference in knowledge -- and interests -- between second-graders and fifth-graders, and hanging around with them may have piqued your son's curiosity.
Is it possible to encourage him to play with children his own age, or to play with the older boys only in supervised settings (such as your house or yard)? Could they have been taking advantage of his younger age in some way?
Talk with the school counselor and ask if he or she could give your son some individual time. The counselor can help determine what may have initiated your son's interests. If he needs further counseling, the school counselor and your pediatrician can help refer you to a therapist in your community.