My 5 yr old had a boyfriend, and it lasted, fairly innocently, I assume for a year or so. At 6, at her birthday party, they sat on the same chair at the scoreboard table while they and her other friends went bowling. when his mom came and saw them together, she asked me if it was too much, and to let her know if he was too overbearing. I just thought it was cute, and didn't make anything of it. that particular child has always enjoyed mixed company, and has made sure the venues for her birthday parties were such that boys would want to come, too, because a lot of her friends at school are boys. She's 14 now, doesn't wear make-up (her choice), and does NOT wear skimpy clothing -- also her choice. She's very modest, and we keep the heat on low to save money in the winter, so sweatshirts are the clothing of choice at home -- and sometimes a blanket, too, if they are playing video games or reading.
At 7, I would be careful not to make too much out of what is going on. Even if the kids kiss, it is much more innocent than even a friendly kiss at your age. I would be more concerned about hiding under the table to kiss than a quick kiss in public. If all their behavior is in public, then you can be sure it won't go very far.
On the other hand, at 7, they should be more active than sitting around watching tv together. Why don't you invite him to come for a play date when the family goes bike riding together ? oops -- forgot about the 2 yr old. We had a backpack for the younger kids, and went hiking as a family (day hikes -- like an hour or so), and that is something you could do. I would prefer them DOING things, playing games, croquet, swingsets, legos, etc., more than sitting around watching tv.
I think you are right to be concerned, but you should also simply watch. They are playing a big game of pretend here, and it'll probably die of its own accord. If that happens, I wouldn't expect her to go out and find another boyfriend at her age. I would think that what would really die is the "idea" of a boyfriend. From ages 8 to 10, most kids tend to avoid the other gender, until they hit 7th grade. In 7th and 8th grade, I'd be concerned about kissing, but probably not in 1st or 2nd.
I also gave my kids real make-up (albeit cheap stuff) to play with as children. I know moms who thought that was awful, but I thought it was much softer on the skin than the play stuff they sell. I also didn't care if they colored their faces with it as kids. What's funny is that I have 4 girls, and NONE of them wear makeup ! the 12 yr old said some of her friends are wearing it, but she thinks it's stupid. Whatever. I told her I wouldn't mind if she wore some, but I'm not into painting up the face big time -- plus she is getting contacts, and I don't want her eyes irritated, but I didn't share that, because I didn't want to worry her about her new lenses.
Both of my girls played dress-up as kids. Usually piling the clothes on, more than taking it off, but, again, we kept the winter temp around 65, so who would want to dress down?
Neither of teen or my almost-a-teen wear skimpy clothing They don't want their belly buttons showing, and they prefer 1-piece bathing suits for comfort. (They wear speedos with T-backs) They wear sports bras because they like them better than training bras. They are both thin and would look nice in some of today's fashions, but I keep my nose out of it, because, hey, they've made some very modest choices, and who would I be as a Mom if I took the modesty away ? It's their best protection right now !! :-)
With that aging perspective, I think you will find that somewhere around 8 or 9, modesty will arrive. And if you allow it, and perhaps encourage it at that point, they won't want you to show up in the bathroom, sometimes, even just when they are combing hair. My girls are more modest than I am, partly because their bodies are changing and it embarrasses them. I firmly believe that it was my own modesty and "body-shyness" that kept me from doing things I ought not have done in high school (with boys), and far be it from me to want to break down that modesty with my own girls. You'll know it when it comes. You won't be allowd in at bath or shower time, etc. They will want privacy, and if you respect that privacy, they will build the boundary around themselves, and it will help them to keep some things private as they go into their teen years. Certainly it's not the only way to encourage abstainance, but it's another one in Mom's arsenal.
It's a little scary to see kids mimic adult behavior. But that's also how they learn. They learn respect and love in relationship by seeing how Mom and Dad both love and respect each other. They see Mom and Dad kiss, and they don't know the rest, so they perhaps mimic that. They see that Mom and Dad are happy, and it's the joyful security they are really mimicing more than anything else. enjoy them. The innocence they bring to these activities can be a lot of fun to watch, silly as it is. But you are also right to be concerned and to keep an eye and a lid on the behaviors. Kids see so much on TV these days, even just on the ads that come on during family time, that there is WAY too much out there to mimic - stuff you don't want them to ape. So watch, be careful, but also try not to worry unless things get out of hand. I suspect they behaviors won't go very far because the hormones aren't there to fuel them. :-)
Good luck !! :-)