Prior to putting them in the cage together, did you do proper introductions? Separate cages close, but not touching, neutral meeting grounds, etc..?
Edit : Read your post again, and it's unclear what exactly Toby is doing when he 'goes to the privates.' Is he sniffing, nipping, what? If he's nipping or something like that, that's a fairly aggressive move. If he's simply sniffing him, then he's just curious.
Your description's a little fuzzy [heh!] but do you mean his.. Well, his inside bits, I guess, are sticking out? There's a condition called paraphimosis, where their penis won't return back into it's sheath. Pictures can be seen on Lilspaz's post about Goli
Here, which also includes a link to the RatGuide page with another pictures and detailed information. RatGuide also has suggestions on how to fix it without medical intervention.