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I am wondering how I can set a order status that is driven by the delivery method chosen by a customer.

Currently I am using magentos "Free Delivery" option which I have labelled as "Collect In Store".

If someone uses this delivery option and pays for an item the order is set to "Complete". What I want is for the order to be set to "Ready for Collection" until someone manually sets it to complete once a customer has collected it.

Does anyone know of a way of doing this?

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Create custom order status.

You can use the sales_order_payment_pay event to set the order status after payment is completed successfully. sales_order_payment_pay

Or if you want to set status after invoice generation then you can use sales_order_invoice_save_after, this is triggered when an invoice is made so you are sure the order is paid as well. sales_order_invoice_save_after

Then change status in observer.

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