I was surprised at just how strongly I felt about this particular situation. The liberal part of me says just tell him, if he's old enough to ask then he's old enough to know and he's too young to really understand anyway but with all the talk recently of the 'loss of innocence' I find myself on the fence. Whether or not he understands I'd still rather he remain totally unaware for at least a couple more years. He's got lots of other things to learn about first.
So after some soul searching, we did a little research and purchased a book. It's basically the answer to the question from a child's perspective with matching illustration. I had a look over the book before reading it to Jack and generally I have to say that it was alright. There's only one page in the middle that I don't quite approve of (a space hopper in involved) but we gloss over that page.
I'm still not entirely comfortable with the idea but I'm getting there. Jack was happy with the answer the book provided and hasn't enquired about it again.
The book is titled 'Mommy Laid an Egg' by Babette Cole and has apparently been banned in some places.