ddydd Llun is better here, yes. It doesn't really matter whether the usage is 'official' or not - it is just better Welsh.
Yes - if you use the phrase Dw i'n seiclo ar ddydd Llun
- dydd Llun - Monday
- ddydd Llun - on Monday (or 'Monday' if you mean the same as 'on Monday')
- bob dydd Llun - every Monday
- ar ddydd Llun - on Mondays
- ar ddydd Llun (yr) 20fed Mawrth - on Monday, (the) 20th of March (a specific date) (We needn't include mis here because the 20fed makes it clear that we are referring to the month, not the day or the planet.)
- ar ddydd Llun (yr) 20fed o fis Mawrth - on Monday, (the) 20th of March (another way of putting it)
Not everybody uses those patterns consistently, though, (particularly ddydd Llun for 'on Monday' as opposed to just dydd Llun) so you need to be aware of the context in which the day/date comes up in a conversation..