In the case of C5/MIlkshake, the brand was already well established and Sky dislike their partners using Pay TV brands on free TV platforms (there was a "Nick Jr on TMF" slot a decade ago which later rebranded as Noggin).
Just out of interest, how is Sky allowed to have a say in things like this? Surely Viacom are providing their channels on Sky, so they can do what they want with the brands used?
This topic seems to come up about once a year, since Viacom took over Channel 5. In the beginning, it was a potential possibility, not likely, but possible. As time has gone on, without this happening, the possibility has diminished to the point where it won't happen now. In fact, it's more likely that Milkshake gets spun off onto its own channel eventually, although it will be difficult to see how Channel 5 will fill those morning hours without it.
The problem is that some programmes which are shown on Milkshake aren’t shown on Nick Jr, therefore you would cause confusion with some of the audience should a Nick Jr ever appear. The best example of that is Thomas and Friends, which is shown on Milkshake and Cartoonito, which is owned by Turner.
They’re probably taking a Sky approach to have separate FTA and Pay TV brands, however cross promotion is evident between Channel 5, Nickelodeon, Comedy Central and MTV, no different than seeing adverts for Sky Sports or Sky Atlantic on Challenge TV.