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No, it is not mandatory but it helps for larger transfers. I hope you are using native iSCSI storage in your Ethernet-based "SAN" since it would be required unless you use a bridge device. You can use traditional FC-based storage arrays but you will require bridging hardware for translation between iSCSI- and FC-based protocols.
The SAN switch vendors now provide "multi-protocol" switches that enable iSCSI, IP and FC through the switch but these are not simple standard Ethernet switches. You will also need an iSCSI adapter for each server or use a standard network NIC, and a software-based iSCSI driver.
For performance, I suggest a minimum of Gigabit Ethernet. As an example of how I have put these together in the past, I have used Alacritech iSCSI adapters in the servers, connected to normal Cisco Ethernet switches as the backbone of the SAN. The Ethernet backbone is in turn connected to a Nishan (now McData) iSCSI bridge at the edges which then connects over FC to a standard SAN storage array.
Chris
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