was this a mermaid? in all of my childrens books with mermaids in the 80's, i don't recall any of them wearing bikini tops- where would a mermaid get a bikini from- a mer-mall? ours always had strategically placed long flowing hair, and it was fine.
i haven't seen it, but i have no big issue with breasts on tv generally. i'd be suprised if any 8 year old doesn't know what boobs are, and what they're for. as a kid i saw a fair few of them (liberated ladies in changing rooms, my mum, medical books, etc) and i didn't suffer some horrible trauma. my niece and nephew (around your kids ages) would be unphased too. i never got the idea that they were something to be ashamed of or hidden away or anything. they're not a sexual object to a small child, and if they're not portrayed as such, i don't have an issue with them being visable, in an appropriate context (like a mermaid, sculpture, etc).
i don't know... maybe i see it differently cos i'm british. lots of stuff thats pixelated on american telly here in canada seems like overkill to me compared to english telly- which confuses me a bit cos we're supposed to be a nation of prudes.
how did your kids react? did you ask them how they felt about the scene?