Download a few chosen photos and videos from iCloud to photos on to an iDevice for off line viewing

If I select the 'Download and Keep Originals' option in settings/photos are my photos & vids still properly uploaded to the iCloud?

Yes, the originals will remain in iCloud.

Will my iPad suddenly become full of 1000's of photos & vids I don't need to store?

Yes, after a while. Photos will keep any image you download stored locally, and over time, all photos will be stored locally.

You cannot control "Optimize iPhone Storage". It is fully automatic. But usually the photos you have not viewed in a long time will get optimized first. keep viewing your Favorites frequently to ensure they will stay put. And avoid running out of storage. If you keep plenty of storage available and free, there will be no need for "Optimize" to remove more photos.

But even then you cannot be sure, that all images will remain stored locally. I am simply only keeping the favorites in iCloud Photos, so I do not need to enable "Optimize Storage" on any of my devices.

You could save the photos you want to keep available to the Files.app and save them locally, not in iCloud.

But then you will not be able to see them in Photos, only in Files.

You're welcome. 😊

Let's keep our thumbs crossed that the next system update will bring an option to ensure, which images will be downloaded from iCloud and stay put. You could send feedback to Apple with a feature request:

Photos for iOS - Feedback - Apple