Do I need a decoupling cap with my setup?
I would say always yes.
Have you got a system that doesn't work?
I would look first to see if the crystal is oscillating, the the input pin is high and that BOTH 5V and BOTH grounds are connected. The other thing to check is the two capacitors on the crystal are the value the crystal is expecting.
The other thing that might be wrong is the fuses inside the chip. These have to be set up for an external crystal oscillator. Try the chip in a known working arduino board.