I can't say that I really have any advice for you, but I was in your shoes just a few months ago so I thought I would share our story to at least give you some hope. My firstborn turned 3 in March of this year and he has been in love with his "plug" since he was about a week old. It really was his best friend. From the time he was about 6 months old, the plug always stayed in his bed, so at least we had that going for us, but we took him to the dentist several months ago and we got the bad news (which we suspected) that his badly mis-shapen bite was due to the plug. The dentist said his teeth would correct themselves rather quickly but we absolutely needed to get rid of the plug before he turned 4, and the sooner the better. I knew this day was coming from the first day I gave him the pacifier as a newborn, and I have dreaded it, putting it off because I was fearful of how he would react, and I also felt bad for him because this plug was his favorie thing in the whole world! I wished and hoped that he would just decide one day that he didn't care for it anymore, but it wasn't happening. We started to talk to him about it, that the plug was ruining his teeth and we needed to get rid of it. That he was a big boy and plugs were really for babies. He had no trouble with the conversations. He's a funny little guy with a great personality and he would talk with us as though he fully understood how important this was. Sometimes, he would bring it up and tell us "We're going to have to get rid of that plug soon."
I had heard of many different methods that people have used, from cutting off the tip, to taking a trip to the hospital and say you had to give the pacifier to the new babies, a friend of mine took her daughter to the pond and gave it to the baby ducks. I wasn't sure if cutting off the tip would work with my son because he still used the newborn size pacifier (we never got him a bigger size, partially in hopes that he would reject it on his own one day) he didn't always suck on it, he just liked having it in his mouth. I didn't really like the stories of giving the pacifier to another baby because it wasn't really true. Plus I'm a bit of a nut when it comes to "the mouth" and the idea was just gross to me that we were going to tell him that his plug was going to be given to a new baby for the baby to use. Give that baby a new plug! Anyway, so what is a nut like me to do? Opportunity presented itself...
At the end of July, my husband was taking our 3 year old with him on a trip back east for a family wedding. It was going to be a whirlwind trip, staying in a different place each night, including one night of camping. My husband and son would sleep together (we are not usually co-sleepers at home) so my husband and I decided to prepare him to be plug-free on the trip. He has his "snuggles," a pair of thermal swaddling blankets that he has always loved to cuddle with (while having the plug in his mouth), so we told him that he could take his snuggles on the plane, but he could not take his plug. He negotiated a little in his special way (he is a "take charge" kind of guy) but he wasn't really upset by it. So off they went, and he was fine without the plug all weekend, he did ask for it several times, but not as often as he asked for Mommy. It was a pretty crazy weekend and I imagine that the poor guy was often too sleep deprived to even care about the plug.
The night they came home, he fell asleep in the car on the way home from the airport. We carried him up to his bed, and he didn't fully wake up, and didn't reach for the plug (which was still in his bed) so I decided to take it out and see how things would go. I really wrestled over that decision because I never gave him any warning. We had told him he would not have it for the trip, but we didn't say that it was gone for good. We never talked about him having it again when he came back, we only talked about the trip, and I don't know what he was thinking, but since we never addressed that specifically, I felt very conflicted. I decided to just go with it, keep the plug out of his bed and see what happened. He woke up at about 3 am that morning and was fussing in his bed. I went to him and asked him what was wrong. He was searching his bed for his plug (poor guy!). I just cuddled him and told him I was sorry the plug was gone. He couldn't use the plug anymore because it was hurting his teeth and he was a big boy. I laid him back down and rubbed his back a little, telling him what a good boy he was and he went back to sleep.
That was the end of the plug and that was really the only sleep interruption related to it. He may have had troubled sleep a couple of other times (I'm having trouble remembering) but none where he needed me, he would just go right back to sleep on his own as usual. He asked for it at every naptime and bedtime for a week or two, at least. But it was always with a smile on his face and when I told him I was sorry he couldn't have it any more (same reasons as always), he would almost laugh and say, "Ooohh."
It's hard to believe it has only been two months since then, because it has been quite a while since the last time he asked for it. We saw a baby while we were out one day (shortly after his plug was gone) and the baby had the same kind of pacifier he always used. So we talked about it, that pacifiers are for babies, but he was a big boy and didn't need it any more, and talked about the reasons again. It was a very light-hearted conversation, and I think that might be the last time it came up.
I'm not suggesting anyone do it this way, I'm still not sure it was the best way to do it. But it worked for my boy and he didn't have much trouble with it at all. I'm sure there is a unique way that will work for your unique boy, you know him best! Not that I knew that this was right for mine, I was very doubtful going through it, but we made it and he doesn't seem to be permanently scarred!! If nothing else, I hope it at least encourages you to hear a "success" story. And his teeth already look perfectly normal. We could see a difference within the first few days (we watched them gradually straighten) and now they look perfect to us!
Good luck!