I'll bite...
The "momentum" that is conserved is the momentum of the system, i.e. the velocity of the center of mass of the two balls multiplied by the mass of the two balls. After contact, the two balls are each moving away from each other and down-table (I'm picturing this as a spot-shot), and their center of mass is moving directly downtable, at a velocity equal to the downtable component of the velocity of each of the balls. This velocity happens to be exactly 2.5 mph. You've still got exactly 5 mph-balls (funny units in this problem) of momentum.
The other thing that's conserved, since this problem is assuming an elestic collision, is kinetic energy, which involves the square of the velocity, not velocity itself. Turns out (non-coincidentally) that the number colin approximated as 3.5 is exactly the square root of 12.5. The sum of the squares of the velocities of the two balls is equal to the square of the CB's initial velocity. If that sounds like the pythagorean theorem, that's because it is. The two ball paths are at right angles to each other. Treating them as vectors and resolving them yields their hypotenuse, which is exactly the vector representing the CB's initial velocity.
Physics are phun.
-Andrew