Some of this will become clearer when you buy some yarn and test it out with your needles to see what gauge you get. The Win-sport yarn knits at 28sts/4inches.
If the sweater blocks out at about 3 inches greater than the given measurement for that size, it may block out to slightly larger on a larger base size. So yes, consider the blocked size and knit to ~3inches smaller.
Try out the pattern sts with your yarn too, that'll help you figure out how many sts to cast on. The pattern uses a repeat of 4sts +3 and the rib is a repeat of 4 sts +1 so you'll have to consider that and round up or down your cast on to suit. You can always re-adjust between the rib and the pattern stitch, usually by increasing.
Wow, great looking sweater!
Could you also please edit the pattern so that we don't have the whole pattern? Just the beginning specs are enough for now. That way we'll avoid copyright problems.