I don't really know what affects Milia. I have had it my entire life, from childhood as long as I can possibly remember, and during that time I've eaten many kinds of diets. My grandmother was merciless in her negative commentary, telling me it was because I was dirty and didn't wash. I have always been deeply ashamed of my eyes because of this. I once went to the dermatologist to have them removed, but that's where I learned it makes no difference to have them removed because they come and go on their own. Thankfully the dermatologist also told me they are not caused by a lack of cleanliness. They are hard and when one finally is ready, it comes out as a hard, white, round bit. But new ones are always at the ready.
Anyway, I looked up Xanthoma and they looked reddish in color so that is why I thought maybe you had Milia. Not that this answers at all your other question about what the body does with extra cholesterol.
Female, 5'3", 49, Starting weight: 163lbs. Current weight: 135 (more or less).
Starting squat: 45lbs. Heaviest squat: 180 x 2. Heaviest Deadlift: 230 x 2