1) Does electric guitar imply heavy usage of dynamic range compression?
Not inherently, but electronic compression is applied to the signal of the electric guitar in much of popular music, particularly when the electric guitar is used in a large band with many different instruments competing to be heard in the mix.
Jazz musicians who play archtop electric guitar completely "clean" don't use compression, and they can achieve considerable dynamic contrast (although, in my opinion, not as much timbral contrast as what can be achieved on a nylon-stringed classical guitar). Furthermore, many electric guitarists use a volume pedal, without compression, specifically to expand the dynamic range they can achieve. Pick softly, pick hard, then increase or decrease the volume even further with the foot pedal to create the effect of an even wider dynamic range.
For examples of electric guitar players who manage to achieve a great deal of dynamic range, I would refer you to the work of jazz guitarist Tuck Andress (Tuck & Patti) and to the early work of rock guitarist Mark Knopfler with his band Dire Straits.
2) Does compression have a significant effect on musical dynamics?
Of course. Electronic compression is designed to counteract musical dynamics. If you use a great deal of compression, effectively you have no dynamic range at all.
As a final and more general note, there are many parts of the signal chain in an electric guitar that, traditionally, added dynamic range compression, or perhaps I should say they restricted the dynamic range that the performer could achieve. Some degree of compression of dynamic range could be due to the specific design of the guitar's pickups, the amplifier, and the use of analog recording tape in the recording studio, and the manipulation of the various gain stages throughout the signal chain. Generally speaking, from the early years of the electric guitar (the late 1930s through the 1960s), the amplification technology available had a limited dynamic range, which could be further limited by use of an electronic compressor. Similarly, the earliest digital recording systems in the 1980s and 1990s had a limited dynamic range. However, in the present era, it is possible to find a guitar, pickups, amplifier, and recording system that have a wider dynamic range than what could be achieved in the early days.
Slim added some good points:
It should also be noted that the processes which electric guitarists use to compress the sound, usually colour the sound too. An amp with the gain set just-so will respond so that:
- a gently plucked note sounds quiet and clean
- a medium plucked note is at peak volume but clean
- a firmly plucked note is at peak volume and mildly distorted
- a very firmly plucked note is at peak volume and strongly distorted
In this configuration, the guitarist is sacrificing control over loudness, but getting control over timbre (clean/distorted) in exchange. Some guitarists regain control over loudness by adding a volume pedal to their setup.