what kind of reaction do lem and scout have to the rumors about boo radley?

Initially, they believe them. They are children with imaginations. They enjoy the entertainment at the expense of Boo. Later Atticus is able to convey a sense of eppathy to them.

At first they buy into the whole nonsense and use the myth to show their own bravery: touching the house, looking into the windows, etc. Arthur is a subject of their curiosity (and boredom, in a time with few toys). Eventually, they want to send him a note asking him to come out so that they can buy him an ice cream; apparently they aren't so afraid any more.

The Arthur story is partially about courage. The kids think that it's brave to play a game re-enacting his life story, to walk through a haint, and to shoot a rabid dog. Atticus teaches them that courage is facing certain defeat with dignity, as Mrs. Dubose does and as Atticus himself will soon do in the courtroom.