dear Ron/Stacey

is it correct to use 'it' referring to a phrasal subject for example
' drinking and eating at five star hotel '
please comment

yes, as long as the phrase contains a SINGULAR NOUN. unfortunately, the particular example you've chosen is not a good one, as its noun is compound (drinking and eating) and therefore should be treated as plural, or at least questionable.
one could argue that 'eating and drinking' is singular because the two are viewed as a unit - in the same way as, say, 'research and development' - but the o.g. will not include compound nouns having that sort of ambiguity.

but there is certainly nothing wrong with
eating at five-star restaurants doesn't appeal to milton nearly as much as it once did..

thanx a lot Ron

I have similar question:
Rise and fall of king X
Is Rise and fall treated as singular or Plural.
Same for Bed and Breakfast

in general, when a compound noun is considered as a unit (fish and chips, research and development, etc.), it takes singular verbs and pronouns.
you could probably go either way on 'rise and fall', depending on the rhetorical context: if you're analyzing the rise and fall separately (with an eye to the different factors behind each), then you'd go with the plural; if you're analyzing the rise and fall as one continuous process, then the singular would be more appropriate.
'bed and breakfast' is undeniably singular, except in the unlikely scenario in which you're mentioning those two items as separate parts of a rooming package.

many such expressions are peculiar to certain regions, though; i don't think i've ever seen any such compound noun appear on the gmat.

do note, though, that 'united states' is singular.