The arduino will not die using 5V or 0V on the pins. For the input pins you should activate the internal pull-ups:
digitalWrite(encoder0PinA, HIGH); // activates PULL-UP resistor
digitalWrite(encoder0PinB, HIGH);
and obviously the pins need to connect to ground when activated.
That nothing happens is very possibly connected to the fact that you use the Serial library in an interrupt (that will block your CPU AFAIK).
Try first a prove of concept in the loop, once working switch to interrupts (nested maybe) if you don't like the super-loop structure.
I guess you also need to digitally debounce the pin readings (or use capacitors).