I would like to know if there is a feature in Magento where in if a guest checksout and his email address is already in the system, can Magento log him in before checkout?
No, you can checkout as guest with any email as often as you want. This would require a custom module with an observer. But you don't want to log in somebody without any authentication just because he entered an email address. So either you should require the password before actually logging him in or send an email with a confirmation link similar to the one after registration.