How do you reconstituite milk jugs back into a liquid form for molding?

There are different kinds of plastics. Some melt at high temperature, some
are ground into a powder and processed with chemicals. It is not something
which you can do at home:

"Chemical or feedstock recycling

 Feedstock recycling describes a range of plastic recovery techniques
to make plastics, which break down polymers into their constituent
monomers, which in turn can be used again in refineries, or
petrochemical and chemical production. A range of feedstock recycling
technologies is currently being explored. These include: pyrolysis,
hydrogenation, gasification and thermal cracking. Feedstock recycling
has a greater flexibility over composition and is more tolerant to
impurities than mechanical recycling, although it is capital intensive
and requires very large quantities of used plastic for reprocessing to
be economically viable (e.g. 50,000 tonnes per year)..."
http://www.wasteonline.org.uk/resources/InformationSheets/Plastics.htm

For more technical details, see
http://www.chemtec.org/books/rap/rap_142.html

Milk jugs are usually made of HDPE
Specifics of that preces are described here
http://www.ctmetal.com/plastic.htm

Its my understanding the reprocessing plastic containers back into new
plastic containers is not effecient nor profitable for manufacturers.
If you remove labels, chip the bottles into a fine dust, and expose to
heat to melt them, it still may release dangerous toxins to the
furnace operators. Also the glue like melted substance would make a
discolored inferior final product. I believe they do, however,
reprocess the platic into artifical lumber products as filler. If you
check your local landfill you'll probably see that there is no big
rush to reprocess plastic milk jugs. They make better bird and
squirrel feeders, funnels, and lobster-pot floats for fishermen.

But if your serious about doing this check out this Connecticut
company that is doing it and sells equipment to do it:
http://actioninternationalinc.com/