Watering down the milk seems like a good idea - but wouldn't that
still fill her up, so that she wouldn't want to eat real food
afterwards? We've been giving her a 9-oz bottle first thing in the
morning and same thing last thing at night. In addition, she has
lately been asking for a third bottle of 9 oz at the expense of the
evening meal.

I think that's really only a problem for babies where every drop that goes
into their tiny tummies must be full of calories, plus their kidney's can't
cope with it. Toddlers on the other hand do need to drink water, if some of
that is hidden in their milk, they will likely cut down drinks at other
times. It's likely to be a bit confusing for them at first, they won't feel
quite the same way when they finish a bottle, they may not be hungry, but
they will be hungry sooner, so make sure solid food is available, you could
even try offering some kind of snack along with the milk to teach the
concept of snack and drink.

Cheers

Anne