What size are the drives? AFIK, a RAID 10 is merely a RAID 1 nested inside a RAID 0 (or is it the other way around? It's been years since I've done RAID).
If I understand correctly.. you'll need to stripe two drives on RAID 0 and then mirror those onto the 3rd drive using RAID 1. Drive size is important here.. the RAID 0 drives have to fit in the RAID 1 drive. Or I
suppose you could do it vise versa with one drive mirrored to two striped drives... either way, you need one drive able to fit the two other drives' content.. spacewise.
Otherwise, the SCSI controller might limit the size of the RAID to what can fit... perhaps that's why you're getting the "degraded" message?
Like I said, it's been years since I've RAIDed anything... and that was either 1 or 0.. not both. So, I might just be giving you bad info all around.
[EDIT:] Yaknow what.. reading a little more into RAID10... your controller may require an even number of drives (say, 4) to properly mirror and stripe. I'm not sure RAID10 can be done with 3.