The first part of your question relates to 'prepositions'. The meanings are subtle but different. A beautiful lady *in* (= located on/in) the world. A beautiful lady *of* (= comes from) the world. 'Person' would be grammatically correct, but sounds more general. We don't know what gender the person is.

"Woman" may be the best choice. As Alison Jane notes, "person" can be either male or female. "Lady" used to mean a woman of the upper class. It no longer means that, but it does often suggest a particular kind of woman. The speaker may think of it as a complement, but a woman may hear it as a man wanting her to be "ladylike," that is, wanting her to refrain from doing things men do.