What would be a good substitution for powdered milk in cereal cookies?
I don't think that infant formula would be a reasonable substitute for powdered milk in your recipe.  

The inclusion of powdered milk here is to provide the taste of milk to go with the cereal component of the cookies (so they're actually sweetened cereal and milk cookies that crunch - not just cereal crunch cookies) - so the real milk taste of the powdered milk is important.  Admittedly, as an adult, I have not tried powdered infant formula, but I would be willing to wager that, either dry or reconstituted, it does NOT taste like the milk you put on cereal.

Also, I would be wary of how the ingredients in infant formula would react when heated in an oven over time.  Different infant formulas have different compositions - typically they have some components isolated from cow's milk, but add other ingredients to achieve a desirable consistency, nutritional balance, and vitamin/mineral content.  There probably isn't much research to help you predict what happens when you bake dried infant formula - you might not want to be the first to take the risk.

Basically, I wouldn't risk substituting a primary flavor component of your recipe with something else - I think you should stick with the powdered milk.