looking pretty slick man- I'd suggest maybe adding an option for vector direction based generation; such as having the snow only generate on the top before anywhere else (z-up generation)-
The normal map looks much better. UDK always uses X+, Y-, Z+. Same with CryEngine. Maya and Marmoset use Y+ (but both allow you to use either, though, with a switch).
If static mesh: it's likely that you accidentally set the first key of the object to be translated down on the z axis. if skeletal mesh: If it's a skeletal mesh, make sure the root is placed at the bottom/center of the object.
I'd probably go for a setup where you let the camera z drive the blender value. Something like: Blender(MyColor1, MyColor2, Clamp(0, 1, (Camera.Z + MyDistanceOffset) * MyDistanceScale * MyMaskTexture))
I've experienced similar problems with maya's camera depth pass. I wasn't ever able to get it working. I had to use the checkbox in the common settings to get a z-depth pass.
Are you using a skydome? It looks like there might be z-fighting on the sky, maybe from a duplicate skydome. If that isn't it, could you possibly post screenshots of your scene with all lights visible and such?
press n and change shading to multitexture and press alt z. If you have glsl enabled instead of multitexture, make a material, assign it to the model, add your texture to the model and then enable shadeless.
You'll want to use HeightFog for that - http://udn.epicgames.com/Three/HeightFog.html Grab it from Actor Browser and move it along the Z axis (up/down) to make it appear on the floor rather than in the sky!
Z Brush's interface is so unorthodox and unique that I think it scares some people and Mudbox's standardized UI, as you said, is the real only alternative. I hope it does stay on the market.