I tried doing just what you are attempting and failed. Resorted to putting the chip in an arduino, uploading the sketch, popping it out and putting it into the breadboard circuit. That worked. I'm curious to see if anyone has a solution that actually works to upload a sketch from a chipless arduino directly onto a breadboard mounted chip.
I built something for that a while ago, but doesn't require taking the chip out of the arduino:http://arduino.cc/forum/index.php/topic,8084.0.html
I like that as well. How is the switch connected to the socket? I have several sockets coming from Sparkfun, So I'd probably like to give this a try.
It was actually a little hellish with my thick fingers, but I drilled a hole through the side of the DIL socket, removed the pin from the socket and repositioned it through the hole and connected it to a pin on the switch which was glued there. Then from the other switch contact I set up a winding contact under the socket and to an added pin to finally connect back underneath the DIL socket pin.
I'm sure there is a market for a DIL socket with little DIP switches along the sides, breaking contacts if needed? I've found 2 uses for such a thing already - this one, and just today disabling the reset pin for burning bootloaders onto blank atmega328's.