We've been there and had some very funny questions. Luckily they do have some female connections around their age.
How your children react to morning erections depends on you. If you view erections as natural and not always as a sexual, then your children will most likely adopt the same attitude as yours. If you teach your children to ask if its time to leave and give you some privacy, they will learn to understand. Being honest and open with your communication with your children helps them to understand and to view the "normalcy" of life in a healthy way.