I don't see a problem, overall, at these young ages, as long as the parents have a goal of changing the situation, perhaps by a specified age. My heart aches for those here who were molested as children, but as long as the parents have no reason to fear that, then I don't see any harm.
I know these kids aren't related to you Missfoodlove. But even if your own DD were to have this arrangement w/ young children, that would be up to her and the dad's judgment, not yours. You might wish to voice your opinion, but I hope you would do so once and then leave it up to DD.