I disagree with other comments.
The first one is correct, but ‘in the snow’ not ‘in snow’. (Provided that its not out of such a context: Look I brought some snow from the mountains and I spread it around the park , now the park looks lovely with the snow. )
Every time you have questions like that, the best thing is to think about something on a similiar logical level. For example:
Autumn walk is lovely with ( the) rain
Autumn walk in lovely in the rain
Then continue:
The beach is lovely with the sunshine
The beach is lovely in the sunshine.
The park is scary with the wind.
The park is scary in the wind?
What rain, sunshine, wind, snow correspond to? Which preposition we use when we talk about seasons? ‘In’or ‘with’?
I think you got it, it is ‘ in’. In winter, in summer, in the snow, rain, sunshine
Terry’s sentence is confusing because ‘ with’ refers to ‘blanketed with something.’
However, if you say The park is lovely with the snow it will not be grammatically incorrect. It will just mean exactly that. If you put some snow there even in a jar, the park will be lovely with some snow, same as with the kids around, birds or grass.
Hope it helps