While playing Might and Magic Book One I came across the Ruby Whistle and was told to blow it, however I have tried to blow it to no avail. I try the 'Use' command, which brings up a message of "Item must be equipped" and equipping the whistle results in "Combat Only" when I attempt to use it. I am stuck and at the end of my wits.

It probably casts the Awake spell if used in combat.
I suggest getting the MM1 hint book, as it has details of all the items, details that are not accessible from within the game.

You do need to use the Ruby Whistle at some point in the game to gain access to a particular area, but it also allows you to cast awake, and improves one of the attributes as well.

I'm not sure I can remember exactly where you need to use it but I think the game might tell you if you don't have the item with you. I can have a look through the notes I made when I played it recently

When you found the whistle there should have been a message:
"The stronghold lies at B-3,14-2
Blow twice to enter."
This gives you the coordintes.
After you found the whistle, you will be asked how many times you want to blow it, when you step on this square.

Did you try turning around on the square? In MM1 some encounters only work if you're facing a certain way (which was an exploit allowing you to escape some monster encounters by moving backwards instead of forward).

And are you sure you're on the right square?

If not, just do the quest again. In MM1 any quest can be repeated.

The default text speed for encounters in MM1 in the GOG version is REALLY fast (due to running on modern super-fast processors), so maybe you just missed the message? But this happens for all text in the game, including combat, so you probably would have noticed it by now if that were the case. Still, I recommend the text speed patch which has been posted to these forums, if you're not already using it:

http://www.gog.com/forum/might_and_magic_series/mm1_read_this_if_you_think_the_text_appears_too_fast/post38

Note that this speed issue only affects MM1, none of the other games have the problem.

If that's not the issue, then repeating the quest as ZFR suggested is a good idea. In this case, I think that all you need to do is drop or sell the whistle, then return to where you found it and you will find it again. But if someone else can confirm this, please do.

After my third attempt I finally did it.