Yeah, me too, but it's actually bullshit. One of the more useful side effects of the internet is the busting of urban legends. Though it's useful only if one actually looks for it: Googling 'Eskimo Words for Snow' gives you easily several references that explain not only where the myth comes from, but also what's wrong about it.
The brief explanation is that besides there being several 'Eskimo languages' these are polysynthetic, meaning one can put several nouns with describing adjectives together into one word -- which gives a new word. I.e. there is snow, there is frozen-snow, frozen-and-dirty-snow, frozen-and-dirty-snow-with-a-crust-that-breaks-if-one-steps-on-it, and then there is snow-on-my-outside-chair-waiting-for-springtime.
Reference: Laura Martin, American Anthropologist, Vol. 88, No. 2 (Jun., 1986), pp. 418-423
"Eskimo words are the product of extremely synthetic morphology in which all word building is accomplished by multiple suffixation [...] Furthermore, precisely identical "whole" words are unlikely to recur because the particular combination of suffixes used with a "snow" root, or any other, varies by speaker and situation as well as by syntactic role."
The paper is actually quite entertaining in the way she clarifies earlier claims ("A minimal knowledge of Eskimo grammar would have confirmed the relevance of these facts to the central hypotheses [...]" Ouch.)
Either way, I was shocked to see that the above publication is from '86, since I must have read about it repeatedly, and definitely after '86.
The interesting question is much longer will that story to survive? So, take the poll below and answer the question whether you had heard of the story that the Eskimo's have so-and-so-many words for the one English word 'snow' (the precise number of words doesn't matter)
See also: Did you know...