I am fairly new to HE and would like a short clarification on how exactly integers are securely encrypted using bits. The main idea is that one encrypts each bit value and represents the n bit number as n ciphertexts like this: $$E(x)=(E(x1),E(x2),...,E(xn))$$ where xi is the bit on position i. Why is that secure, when I have just ciphertexts that correspond to '0' and '1' in a particular order? Example: $$101 -> (E(1), E(0), E(1))$$ Can't I just guess 101 only from the E() values. Why is this not possible? Pointing me out to a good paper or read on that would be greatly appreciated!
Yes the adversary can guess the plaintext, and there is some probability $p$ his guess is correct. There is no way we can prevent that, and this is not a security flaw of the encryption scheme.
If the homomorphic encryption scheme you use is IND-CPA secure (or equivalently, semantically secure), the ciphertext should be indistinguishable. It entails that any (PPT) adversary cannot gain useful information from the ciphertext about the plaintext, hence the ciphertexts do not give the adversary any advantage in guessing the correct plaintext. So without the ciphertext, the probability of guessing correctly is $p$, and with the ciphertext, the probability of guessing correctly is $p+\epsilon$ where $\epsilon$ is negligible. Thus the ciphertexts, although are produced from the plaintexts, are useless from the adversary's point of view.
So the takeaway message is that security of an encryption scheme is not defined in term of "plaintext cannot be recovered" (which is impossible to achieve), but in terms of "the scheme does not make it easier for the adversary to recover the plaintext".