An optocoupler is most of the times used for isolation of circuits.If you wired it up anything close to that drawing, the optocoupler can as well be replaced by some transistor (which saves you some money).The power lines from the transistor output of the opto and that of the LED are to be separated.Leave one end of the LED to some level (through a resistor), and control (/switch) it at the other side, exactly as drawn.Just leave the LED and the transistor separated.
So you are saying that the 5V+ and the Ground should be separated / split between the Arduino and the external sensor.
However, the Arduino on-board pull-up resistors are of little use, as the wire from the sensor is effectively isolated from the Arduino.
The Arduino Gnd could be in common with a separate power source's Gnd, with an optocoupler "between" them.
the cables from my central board to the sensors can be up to 40 meters ( 120 ft ) and I was concerned about anything that could happen over that distance, and what quality of signal could be returned to the Arduino. <snip> I have already seen monkeys chewing wiring in the area, so must plan for that possibility.