The Great Inuit Vocabulary Hoax is anthropology's contribution to urban legends. It apparently started in 1911 when anthropologist Franz Boaz casually mentioned that the Inuit—he called them "Eskimos," using the derogatory term of a tribe to the south of them for eaters of raw meat—had four different words for snow. With each succeeding reference in textbooks and the popular press the number grew to sometimes as many as 400 words.
First some facts. Eskimo, or more accurately the Yupik and Inuit-Inupiaq families of languages, have a handful of words for snow, ranging from estimates as low as two to a high of a dozen or so. That's about the same number that can be found in English (snow, sleet, flurry, blizzard, slush, powder, etc.). So actually, Yupik and Inuit are not remarkable in the number of words they have for snow.