I would call childrens services. Neither a 3 yo or a 5 yo should have enough sexual knowledge to be intentionally gyrating naked in front of a neighbor. Sexual knowledge that is too advanced for a child's age can be a symptom of abuse. OP, I think the creepy feeling this gives you could be an intuition.
I work with abused children, and with children in general, and this is not true. I actually don't think that this is advanced knowledge for their age, and even if it were, advanced knowledge does not always indicate child abuse. I mimicked a lot of stuff I saw on TV, when I was that age, and I was never abused. I feel this suggestion it quite out of line.
Also, didn't we just have a thread about a poster who was sunbathing nude in their backyard, and everyone said that it was fine and no one else's business? I don't understand how this is any different?
I do agree that the issue with disturbing the dog, and shaking the fence can be addressed.