It's quite normal for puppies to hump, male or female. They aren't having "urges" and they aren't displaying dominance. They've merely figured out a new way to interact with their environment and are testing it out. I've yet to meet a chihuahua that didn't do this. My male did, my female did, my parents female did, their male still does on occassion. Get him neutered no earlier than 6-9 months, and by the way, if he's already figured out how, neutering him won't necessarily stop this behavior. Good training, however, will. When he goes to hump whatever, tell him No!, and remove him from whatever he has wrapped his little legs around. Then redirect his attention to something that pleases you for him to do, and praise him for doing so.
As to your kids... Tell them he's playing, as that's what he's doing.