I'm gonna play devil's advocate here and be the one to say this is a bad idea.
A) A milk jug (tide bottle, etc.) has zero puncture resistance but lots of flex.
B) Have you ever seen what happens to a milk jug that's been exposed to the elements repeatedly?
You're walking through the woods and slip and land on your knife. It's in a sheath that's easily punctured anyway and since you've been using it a while, it's now brittle and ready to crack. Your penny pinching at best just caused you a hospital bill and a shortened trip. At worst, you're screwed.
If you wanna make your own sheath, I advise you splurge the whole ten bucks it would cost you for a 12x12 piece of kydex or leather. Joe's PVC pipe idea would be better as well.