No we are not using any distrubited switches (if we were would this have been possible?)
No, not with the VMware Distributed vSwitch.
If i configure etherchannel to use the ip hash policy - any changes need to be done at the physical switch port level?
Yes, you would have to configure the physical switch with static link aggregation, called Etherchannel on Cisco switches ("Trunk" on HP). The mode must not be "dynamic" but "on", that is there is no support for dynamic link aggregation protocol like LACP or PaGP.
Basically this policy will be a faster but aggregate bw to vm will still be 1gb?
The load balancing will be based on IP addresses. This means if you have, say, a large fileserver with hundreds of client connections then this VM could send 4 Gbit of data simulateous. However, from this VM to any single IP address there will only be one vmnic used.