Just my regular laser printer paper (I use Hammermill papers)... With the Avery glue stick, it's easy to remove when you've emptied the bottle. If you do it shortly after draining it, and rinsing it out, just run water over it to get the glue to let go. Or a quick hit with a window scraper (razor blade based) does the trick. I then just run over the bottle with my scrubbing sponge and it's all done. Takes maybe a minute to rinse the bottle OUT and get the label off. For the little bit of effort, it's a bargain in my book. Plus, I print out just what I NEED for labels. I also don't need to worry about delivery time, or if I don't put it on just as I like. The glue is forgiving enough when wet (dries fast though).
For the gluing part, I put one stripe down the center, one on each edge (top to bottom of the label) and usually one between the middle and each edge. Keeps the labels on nice that way. I also use a small towel to make sure the labels are on firmly, and remove any excess glue (comes out from the edges)... Since the glue is non-toxic, and breaks down fast in water, it's extremely safe for this application. Sure, you could use milk, IF you have milk in your fridge. Personally, I don't buy milk, getting half 'n half most of the time I buy milk products (to make cream sauces)...
BTW, glue sticks are CHEAP when you get them at office supply stores. Not sure how much you'll pay to get labels printed, and shipped to you, but that has to come out to far more than doing it this way. I can get 1500 labels from a single ream of paper. That paper costs me about $5-$6 depending on if it's on sale or not. Glue sticks are a few dollars more for a 6 pack (almost 8oz of glue) that will do a LOT of labels/bottles...
I would advise trying it out. It won't cost much to do so, especially if you have a laser printer, or access to one. I do all my label design work in Photoshop (CS5), ganging up three labels per sheet when I print them out (labels are 3x5). I leave enough space to not worry when I trim them up. I've had a lot of positive comments about the way the bottles present this way.