BGP Multihoming with two routers and two upstream ISP routers

Yes you want to use loopback interfaces for your bgp peering instead of physical. In regards to redundancy, you can achieve that. You can load balance with BGP though. You can offer redundancy and load sharing with the usage of AS Path manipulation for inbound traffic, as well and the use of Local Preference for outbound traffic. See the link below to give some config example and explanations of what I am referring to.

https://www.cisco.com/c/en/us/support/docs/ip/border-gateway-protocol-bgp/13762-40.html#anc14

Attached diagram is architecture being worked with more or less.I am uncertain whether both OSPF and IBGP has to be established between Router1 and Router2.Should Loopbacks be used only between Router1 and Router2 and not with EBGP with ISP? Should Networks be included in OSPF networks too?What should Router2 and Router2 configs look like considering they both are advertising the full /22 and respective /23.

I am uncertain whether both OSPF and IBGP has to be established between Router1 and Router2.

Depends. If you are running OSPF as you IGP than it is fine. Otherwise I wouldn't see the point of running OSPF between them.

Should Loopbacks be used only between Router1 and Router2 and not with EBGP with ISP?

Remember the main purpose of using the loopback is to no be dependent on a physical interface for your bgp peering if you have more than on path to the BGP neighbor. If you only have one path, then there is no point.

Should Networks be included in OSPF networks too?

The routes that you receive from your EBGP neighbor should be redistributed into OSPF.

What should Router2 and Router2 configs look like considering they both are advertising the full /22 and respective /23.

Please expound on what you are asking here? Also are you purposely advertising 228.0/23 and 230.0/23 or is that a typo?

Thanks for the patience Soulja.

Starting with the last question first.

What should Router2 and Router2 configs look like considering they both are advertising the full /22 and respective /23."
 
Yes I am purposely advertising 228.0/23 on one router and 230.0/23 on the other for load balancing during normal operation.

Secondly
The answer to the Loopback question is a bit vague.It is understood that a loopback is better used in the event there are multiple ways of reaching a device instead of that one physical interface.The aim here is to assure connectivity through the second router should the physical interface between EBGP points were to be interrupted for some unknown reason.The plan is for connectivity to the internet  , continue through IBGP link established between local routers and up through the other ebgp link. Should that loopback be shared with the EBGP peer also in this case ? Please take a close look at the Diagram.If it is poorly designed don't be afraid to say so.