If it were me, I would lose the bottle first. I think that's an easier task than the potty training anyway. Switch her to a sippy (there are several that are bottle-like, that transition to the next stage that are more cup-like, etc.). I don't know what to tell you about the milk/water thing. I'd only offer her water if you're giving her a bottle/sippy cup to soothe herself to sleep. Drinking milk before sleeping can cause tooth decay. And trust me, when you take her to the dentist in a year or so, the dentist is going to notice. I'd say that if you tell her that she can only have water in her bottle/sippy cup, she'll ditch it because it's not what she wants.
I will also say that you can't expect this to be an easy transition. Being a first time mama, you don't want your little girl to cry or fuss. But she's going to. She's not going to like that you make changes. But you're going to have to hold your ground. I'm not saying that to be harsh, I know from experience. You may have to chant to yourself in the midst of her screaming, "I'm doing the right thing. I'm doing the right thing." Because getting her off the bottle IS the right thing to do. But, you can do it mama!
Potty training is an ugly beast. I am on the verge of training my third child (she's 2 1/2 as well).
Here's my take on potty training. People say you can do it as young as 18 months. And believe you me, I tried so hard right at 18 months with my first. I was bound and determined to get her potty trained before her new sister came along. We used the potty chair and modified toilet seats and pull ups and training panties and candy and bribery.
Instead of having a happy potty trained toddler, I had a child who left puddles all over my house and I was a crazy, nervous, wreck. I was SO tired of cleaning pee and poo off the carpet, off the floor, in underwear. I pushed and pushed toilet training on her. The fact was she wasn't ready. And she wouldn't be until well after her third birthday. So I spent a year and a half being crazy because I couldn't get my child (who WAS NOT ready) to learn how to use the toilet.
With my second, our family was under stressful circumstances, so no time felt right to start potty training. So, I let her sit on the potty chair when she wanted to here and there. Then one day, around age 2 1/2, she took off her diaper and sat on the potty chair all by herself. And then she did it again. And again. And then she went poop. I spent about a week working with her pretty intensively, and that was that. She practically potty trained herself.
Now with my third, I'm still feeling her out. I refuse to make myself crazy and push my potty training agenda on my unsuspecting toddler. I put her on the toilet before bath time, let her sit on the potty chair if she asks, and let her sisters encourage her. And you know what? She's interested. I suspect that in about a month or two, we'll be working hard on it, and by fall, we'll be diaper free in our home.
The moral of the story here is: Every child is different. Your best friend's little boy may have conquered the toilet and started wearing big boy underwear around 20 months. That doesn't mean that your daughter has to follow suit or that she's behind. It just means that she'll use the toilet when she's ready.
A couple of tools we used for potty training were the "Once Upon a Potty" book by Alana Frankel and "Elmo's Potty Time" DVD (which I absolutely hated, but the kids loved - so, whatever).
Another thing to note, night time potty training is an entirely different beast. Some kids take longer (like even into elementary age). I would worry more about learning how to use the potty during waking hours first before trying to tackle the night time.
I wish you the best of luck in both! You've got a long road ahead of you, but you'll come out at the end of it feeling accomplished and ready to take on the preschool years!