[Darwin]

No, you need some outside way to change the entire mass of the object in question (squirrel) into pure energy to use that equation. The equation simply tells you exactly how much energy would be produced if you could change a squirrel into energy (as others have stated you would need 1kg of antimatter to do this.)

You can't accelarate a squirrel to the speed of light squared becuase matter cannot reach the speed of light and nothing can exhead it. In this case the speed of light is just being used as a number not as a speed. Why it works out to exactly the speed of light squared is one of those quantum physic things that I don't know.