Yes taking off the VLAN ID helped 
however I also found out I had ip add configured on the physical NIC which I needed to remove. So was able to ping
Now I am trying to do intervlan - so added VM1 to a port groupo with VLAN 2 and VM2 to port grour with VLAN 3 and configured the physical port trunk on do1q.
However I am now not able to ping host gateway again in this scenario. Do I need any trunking on the vswitch?
One of the other reason might me Win7 as I heard that the Windows strips off vlan tags on most cards