Why doesn't the main breaker shut off power for house?
There should be a snap to it; the contacts are spring-loaded so that they make or break contact quickly, reducing any arcing that might occur as they approach or separate.  Arcing can still happen, but there's less opportunity for it than if the contacts were moving at the speed that you're moving the switch.

Like any mechanical device, they can wear out over time.  And this is something that I'd definitely have a licensed electrician look at; you may even need to have the electric utility involved too since they may want to disconnect your house completely before working on the switch.

Here's what Wikipedia has to say about them.