Just to get the order of things right. Can I just move everything to a .wordpress.org blog - test it - then just buy their hosting and change my DNS and my new site is ready? Or do I have to move straight to a say WordPress custom domain site?
To clarify: WordPress.com is the managed hosting and that seems to be what you refer to above. WordPress.org allows you to download WordPress and install it on any compatible hosting platform and you are responsible for all of it at that point.
To answer the question, you can do either one. WordPress.com's free accounts has some built-in tools to import from Blogger sites. If you are happy with the managed hosting (which also means limited theme and plugin choices as well as limited control of CSS and other things) then you can upgrade from domain.wordpress.com to domain.com for a small monthly fee.
If you go with self-hosted WordPress, the same tools exist or you could use one of several plugins that extend the basic import functionality. A self-hosted site will start as domain.com unless you set it up to run locally or off an IP.
Based on your overall questions, I would recommend setting up a free WordPress.com account and attempting your import from Blogger there. That will give you a lot of information at little to no cost. If you choose to move to self-hosted WordPress later on, going from .com to self-hosted is fairly simple.
How is the LetsEncrypt support? And how difficult is it to add an SSL cert otherwise if not using LetsEncrypt?
WordPress doesn't care who you get SSL support from. You configure that via your hosting. If you choose the wordpress.com managed hosting route, https is enabled by default, you don't need to deal with Let's Encrypt. If you self-host, check with your ISP to see how to enable secure hosting.
It says I should download the XML file and all posts with the images etc will be copied, but what about the formatting of the posts? Will it be displayed correctly? For e.g. quotes etc. Or will I have to spend hours on getting that right. I ask because blogger editor is a nightmare and has tons of issues.
In theory, the Blogger export file will contain your posts as currently formatted (HTML tags). What will not transfer exactly the same is any CSS your Blogger site currently uses to affect the behavior of the HTML. Your new WordPress site will have its own CSS file and that may affect how things display.
Continuing from above, what about the theme? I mostly will choose a new theme for sure but will the transition of posts (formatting etc) from this theme to the next one have any major issues?
See above. Your new WordPress site will have different CSS from your Blogger site and that can affect things. Basic stuff like bold and italics will be okay, as will gross layout (p's and divs and tables) inside your post content. But the exact display will change based on the CSS of the theme you choose. Generally speaking, this is a good thing...you want your content to be mostly independent from your theme so changing the theme will result in minimal disruption to your content. If you micromanaged the format of the content in Blogger for whatever reason, you may have some work ahead of you to fix it.