I'm a bit late to this discussion - but I don't believe Children can ever intrinsically know anything (e.g. right from wrong) without external influences, perhaps the question should be 'do children know the difference between good and bad touch without it being explicitly explained by their care givers'. In the case of my own children the answer is yes, they do know some types of touching is inappropriate. We hadn't explained this explicitly to them, but it is communicated through our style of parenting, our values and expectations.
For instance, we have always encouraged and respected our children's right to privacy, so for example, as soon as they were able to bathe/toilet themselves, we stopped assisting them. I haven't seen my kids in a state of undress since they were about six years old. So the fact that they are aware of their right to privacy and dignity has influenced their awareness of what is acceptable and unacceptable when it comes to their own bodies. They also become aware of such things from other family members, other families and friends.
Personally I don't think it does any harm to explain such things in a careful and non-scary way (and there are plenty of free resources available). It is equally important children feel able to tell someone if they feel something inappropriate has occurred. But if all a child has ever known is 'inappropriate touching' they will think that is the norm won't they?
The comments about touching in a medical setting are very close to my heart. I was subjected to inappropriate touching by medical staff, but also appropriate touching (and procedures) that I interpreted as inappropriate, frightening and/or traumatising, often because of a lack of understanding on my part, or explanation by medical staff/parents.
mit