At first he was embarrassed and hid under his blanket and told me to go away. I didn't make a big deal about it and asked if he wanted to look at the book on his own and then ask me questions. He kinda hemmed and hawed and half heartedly told me to go away again. I started flipping through the book on my own and he caught a glimpse of one of the nakey illustrations and he was at my side.
I tried to stay very cool about it, not laugh, but be natural. Although it was really hard to keep a straight face when he yelled "so dad stuck his penis in YOUR vagina?" At one point I think the whole discussion was a little titillating to him (as to be expected I guess) and he started looking at me with lusty eyes and grinding his hips (I think I heard a little Barry White in the background). It provided a good segue into "appropriate" touching, etc.
I told him I'd put the book in his under-the-bed book box so he could look at it on his own too. I'm relieved that we started the conversation (fully aware that this is just the tip of the iceberg) and I'm glad that I gave him the information, not some random kid at school.
I knew it went OK when he invited me to play Mario Strikers Soccer afterwards (he completely kicked my ass). And so far I haven't heard him tell the little brother what their dad did with his you know what. Only a matter of time...