You'll have a rough few nights but she's way past being developmentally ready to sleep through the night, so you know she can do this and you have to really stick to that message of "you can do this" because it will be hard for her. You already know that she's way past the age when bottles should have stopped and never should have been given cow's milk at night anyway due to a) no need for it and b) tooth decay. But I totally understand how habits hang around and before you know it, you're at this point where you all know it needs to stop but ending the cycle is painful.
Be prepared for a few really, really rough nights in a row. When my middle son was 3.5, he was still using a pacifier to sleep (and was using it during the day too). One day he asked if he could go to Build A Bear Workshop to make a bear. I told him that that store is only for big kids, and that babies who sleep with pacifiers can't go there. He immediately volunteered to give up his binky so I said that fine, after 3 nights of no binky, we'd get him a bear. Well that first night was just terrible! He was crying and crying and crying his little heart out, saying "I don't want a bear I can't sleep without my binky please mommy I'm so tired and I need my binky, I can't do this, please mommy, please!" So I sat with him (for hours and hours and hours...seriously until like 1 AM) and just rubbed his back and soothed him and encouraged him and told him that he could do this, he was a big boy, etc. He'd doze off and then wake up in a panic a short while later, desperately looking for his binky. He finally conked out for the night. The next night was more of the same, but he was asleep earlier, maybe by 11. The next night there was some whimpering, but he fell asleep quickly and that was that. Habit broken. We went to B-A-B, got him a bear and he still sleeps with that bear (he'll be 10 next week).
I would offer some kind of reward for breaking the habit so that she gets something positive out of it (in addition to a good night's sleep). Is there something her older sister has that she wants one of? Is there a special doll or blanket or nightlight or something that can be her new lovey for sleep and replace the milk habit? Give her some kind of motivation to get through this.
If I were you, I would leave a water bottle (with a sippy straw top, you can buy them anywhere) in her room and let her know that if she's thirsty at night, she can sip her water and that's it. She's not to get out of bed, wake anyone up, or have a diaper changed. Milk is way more rewarding than water so once she doesn't have something good like milk to wake up to, she won't bother waking up for water. Someone told me that when I was night weaning my middle son (the binky boy) and I didn't believe them but really, one night I went from offering him the breast to offering a bottle of water (he was 18 months old) and after a couple of times of waking up to that, he didn't bother waking up anymore.
The only concern that I would have is with the timing of moving them to separate rooms. If you wait until she's in her own room, she may associate this negative experience with being in the new room and have other issues sleeping. I would be tempted to give it a try this weekend while they're still in the same room. Your 5 year old will survive a couple of nights of interrupted sleep (my binky boy also shared a room and his brother was fine through this) and you'll break the habit in the old room and give her some time to adjust to her new sleep pattern before making the switch.