1) Is there any special setting/configuration required to enable hot swap debugging on Android?
Example case:
Not truly hot swapping but there is a library on Github which emulates that. You can find it here: https://github.com/mmin18/LayoutCast
It has some issues but is active as of the time of writing of this answer.
Also, ZeroTurnaround seems to be working on the problem with JRebel for Android. You can request beta access here: http://zeroturnaround.com/software/jrebel-for-android/