From what I've found so far, it looks like any option which includes TCP/IP instantly starts looking like $60 per location. It needs to be cheaper than that.
If you aren't running the cat5 cables through anything that expects to deal with IP packets like a router (i.e. just using the cable as a convenient way to string 8 wires), for short runs, you could just connect the wires to each pin.
I suspect for longer runs, you want to add something that can deal with check-summing and resend the packets if there are errors. You could use some cheap microprocessor on the remote end to do checksums, etc.
Note, the problem of point to point links like this is only one system can control them. You can of course log onto the central system to control the Arduino. It would be more flexible (and costly) to have each controller be a separate entity that has its own network IP address.
Is there a reasonable (known) limit that even digital sensors would fail at? 10ft? 50ft? 200ft?