I thought encoders were not connected to vcc, only GND and two digital inputs (interrupt pins for best performance right?)
There are encoders and there are encoders. Optical and Hall Effect encoders require a power source, and any with open-collector outputs or switch contacts require a pull-up - the internal pull-up of the Atmel chip.
You only ever require interrupts for encoders driven by motors which generate more than a few hundred signals per second
and are fully de-bounced (hall/ optical). Interrupts are a problem as contact bounce will generate barrages
of interrupts which if fast enough, will cause the code to crash - I have given up trying
to help people who are using interrupts to service encoders and pushbuttons. Pushbuttons and manual encoders require debounce to prevent spurious events faster than 100 per second (if even that),
My 5v/3a supply is a power cable that's used to power a Cisco device or something like that, it looks like a laptop charger cable I guess, just says 5v/3a on the box.
Feeding it to Arduino is something I considered, (through VIN and GND pins) I was just unsure as to whether this would damage the atmega2560's pins if I'm drawing about 1A from the power supply, or whether Arduino would regulate this down to 500ma.
Given my previous comments about how much you trust
the power supply, if you feed the Arduino with regulated 5V via the Vcc connection (you cannot use Vin as you need 7V minimum for the regulator), it only draws what it
needs, the current drawn by the other things connected to the same supply never passes through the Arduino, so is irrelevant.
I must point out the fact that because the LED's are on the same PCBs as the pots and buttons, this means that I want to only have 1 vcc and 1 gnd rail for each pcb. (having two would get too complicated)
You only ever
have one ground rail, except for very special considerations of audio, video or analog sensing. Everything connects to that ground rail with as little resistance (lead length) as possible.
You have as many Vcc rails as different devices have different requirements. If everything will
operate from 5V and you have a well regulated supply, then that is "the" Vcc.
The supply for the potentiometers however, should
come back separately from the Vcc terminal on the Arduino (and also separately from the ground terminal - that's the bit about "analog sensing").