four days later they have done this... I assume it's a root ? lol (I never grown anything in life).
Yes these are germinating nicely. The root comes out first then burrows down and you'll then see it attempt to lift the leaves out of the seed casing. The same is happening in this photo (this is the same fruiting Naga above!):
whats next step ?, at what point do they need potting, and best technique would be great.
Skeeter or 5ingha are probably the best people to talk to about with respect moving from cotton wool to soil. They'll be quite sensitive to heat, so wait a little longer.
The options are that you could move to Jiffy pellets (which won't really be needed as they do the same function that you've already done) or straight to potting compost in pots. I would use potting compost rather than normal as it's finer and will give the roots something to get stuck into.
I would use a mix to make up the soil in the pots:
3/5 - potting compost
1/5 - perlite
1/5 - vermiculite
Perlite and vermiculite help break up the soil and prevent it from packing hard over time which suffocates the roots. They also improve the drainage which prevents rotting of the roots.
Shove the mixture into a pot (with a pot saucer thingy), leaving a 3/4 to 1 inch of pot unfilled (you'll see why) and then place the germinated seed into the soil but not deep.
Once the plant has grown and it's first set of leaves have risen above the top of the pot, add additional mixture to fill the pot.
My only concern is that it's late in the season for growing new plants so you may have to focus on growing the plant and then building up it's reserves to over winter.