Your problem isn't due to where the switch on the back of the PSU was set to. You should be able to power on with that switch in either position without it causing any problems. In one position, it should start the system. With the switch turned to 0, it should do nothing. You have a bigger issue somewhere else, not where you have the switch set to. That doesn't matter at all. Something is shorted out or you have a really, REALLY crappy power supply.
And if you were still assembling the system and didn't have things fully plugged in yet, the power supply shouldn't have even been plugged into power at all.