Playing two handed. I'm in stage 3b, cleared Caradhras, and stuck waiting for more VPs to win.

Stage 3b: Characters with 0 willpower are discarded.

1st encounter card revealed - Snowstorm (When revealed: Questing characters get -1 until end of phase)

2nd encounter card revealed - Avalanche (Exhaust all characters and commit them to the quest)

Legolas was not questing when snowstorm appeared, but he had no choice but to ride the avalanche. Snowstorm doesn't say "currently questing," but the effect does say "until end of phase."

Does snowstorm affect him? Or does it not because he wasn't questing when it was revealed?

When in doubt, I err to the harsher. Legolas ended up dead and frostbitten at the base of the mountain.

So...should I have discarded Legolas, or was he due a reprieve?

Snowstorm will get him, all right. You played correctly. That's a nasty 1-2 punch that this scenario can pull, and somehow it seems to get this combo off every time...