Phoenix's mission statement is "Follow the water." Water is believed to be essential for sustaining life, and so measurements of water existing on Mars would be a step towards discovering life outside of Earth (and may also be useful for sustaining human missions to Mars). The TEGA instrument on the Phoenix Lander is equipped to directly measure water vapour in the atmosphere. Water, in the form of morning ice fog, may be visible with the lidar, but it may be very difficult to distinguish ice particles from dust.
Determining the vertical distribution of dust present on Mars is one of the reasons Phoenix will be equipped with a lidar system. The dust on Mars determines how light reaches the surface (much like the molecular atmosphere and clouds do on Earth), and can reduce the amount of light anywhere from 4 per cent (extremely clear) to 93 per cent (severe dust storm). How much light reaching the surface is important for understanding the weather on Mars, much like Earth, and so the Phoenix lidar hopes to help answer these sorts of questions.