I've been trying to get an 8x3 encoder (IC 74LS148) working using a 10 pin dip switch, I simply connect the 1-7 ON sides of the switch as inputs for the encoder and the OFF sides of the switch to the VCC. The A0 output of the Encoder I get is always a High logic level or "1" (LED light turns on) regardless if any switch is on or not.
Since the the inputs to the 74LS148 are active low, you actually want the common lead of all the switches to go to ground, instead of VCC.
This is why the outputs of the encoder are always high -- if the switches are off, the floating inputs act as high inputs, and when a switch is on it is also driving the input high. So there is no way to drive any of the inputs low.
Besides tying the common lead of the switches to ground, I would also connect 4.7K pull-up resistors between each of the inputs of the encoder to VCC, rather than leaving them floating. It's just better practice for TTL (74LS series), and required for CMOS (74HC or 74HCT series). This way it will work for both types of chips.
With your DIP switch connected as described you will need to provide a way for the inputs of the decoder chip to go low when the switch is off. That said, when using a chip like the LS148 you may want to rearrange the connections as shown below and use pullup resistors to establish the high levels on the inputs to the chip.