My 5 yr. old step-son who lives with my husband and I has had several incidents with his penis. According to my husband he has had some issues since he was about 2 yrs old when he used to live with his mom. He said she even took him to the Dr. about it. He does seem to have a larger than normal penis for a 5 yr old.

Hides behind furniture and under blankets to masturbate
Went into his room at night and he is sleeping and his pants are down
Looks at himself in the mirror naked checking out his penis
Caught during nap time at school masturbating
Puts his hand down his pants and says he is fixing it

These things were a little concerning, but when he has involved our other 2 yr old boy that is when we were alarmed.

Once during nap time (they sleep in separate beds, same room) my younger son (2yrs old) called out to me and when I went into the room he was standing up in his bed with his pants down. Our older child (the 5 yr old) said he had shown him his penis so that is why the baby pulled his pants down.
The other day my husband walked in on the boys watching TV except the 5 yr old was kissing the 2yr old between the legs. (he had his pants on thank God). I am afraid to turn my head for a second or to even have them sleeping in the same room.
They do take baths together, but I never leave them alone and I am usually playing toys with them. We have never had a problem then other than he looks down at his penis a lot.

What should we do? Should we seek help?

I do believe it is time to seek help. You would not want this "kissing" issue to happen at school.

Has he always lived with you? Was there ever a possibility of molestation?

YES! I'm not trying to scare you, but my aunt had the same problem with her step son. My aunt an uncle ignored the problem, and eventually her step son started molesting their younger son. They had to had their step son removed from their home, and placed with his aunt. (His mother is deceased.) While living with his aunt he raped 2 girls, and is now in juvenile detention. It's just my opinion, but I think you need to at least speak to your pediatrician. Maybe he/she has some suggestions. Your step son may out grow this, but why risk it? Doctors are there for a reason.

Make sure this boy does not have some kind of infection in his penis area, something that would itch him and make him want to touch his penis to stop an itch. It could be something like this that draws his attention to his penis. As far as your two year old I have an idea that he already knows what his penis is for and your only problem is to keep an eye on the two when they are together.

Can molestation be an issue? Also, are you monitoring what he is watching on TV? There has to be some explanation as to how he learned this behavior (kissing between the legs). Where the heck could he have seen that?