Hi @T
I'm glad that you were able to resolve your issue and thank you for posting your solution so that others experiencing the same thing can easily reference this! Since the Microsoft Q&A community has a policy that "The question author cannot accept their own answer. They can only accept answers by others ", I'll repost your solution in case you'd like to "Accept " the answer.
Issue:
Deleted xxx.onmicrosoft.com domain but I am unable to reuse it - it is still in use and show as Domain in use.
Solution:
It is solved by adding onmicrosoft.com domain is hidden under existing domain settings and selecting add onmicrosoft.com domain (preview) option.
After adding it this way, SPOTenantRename worked.
If you have any other questions or are still running into more issues, please let me know. Thank you again for your time and patience throughout this issue.
Please remember to "Accept Answer" if any answer/reply helped, so that others in the community facing similar issues can easily find the solution.