After researching for a bit, I found this very interesting forum post which pretty much explains why they needed snake. Please note that this is fan speculation (an official explanation might not even exist). Prepare for a wall of text.
FOXHOUND knew about PAL, the issue was finding the keys. They didn't know about the shape memory aspects. Baker had talked under duress however, and so Liquid could've most likely coerced Baker into opening his private files, should the need become apparent. Point is, Liquid had options.
But he decided to play chess, using Snake as a pawn, to see if Snake knew something useful. Something that could speed up the process of reacquiring nuclear launch capability. It was why he placed Octopus in the cells in the first place rather than simply have his unit hunt Snake from Minute One. Liquid did intend to kill Snake, as proved by the presence of the soldiers sent to kill him immediately after he met Octopus/DARPA Chief in the cell, but what was a total surprise to everyone was FOXDIE. Snake, in moving through the facility and inadvertantly killing Baker, suddenly became the only option in locating PAL and its instructive use.
To that end, Liquid had to keep Snake alive and ignorant. Ignorant of the larger issue, that FOXHOUND couldn't launch, and alive so Snake could get the PAL and the info on how to use it. But Snake caused a fuckload of trouble. More trouble than he was worth. Eventually, Liquid probably felt he had no other choice but to kill off Snake, and track down Emmerich, who he could then use to get the necessary information. See, once Meryl revealed to Snake she had the PAL key (or at least one of them, in Liquid's mind), all that was necessary was learning more about PAL. Liquid was in the know about Snake's conversations with both Hal and Meryl. He was getting a better picture of what PAL was. But it was coming at a cost.
Added to things was Gray Fox, and Ocelot's subterfuge. These two things permitted Snake a great advantage. Had Ocelot not been playing Liquid, Snake would've lost the key, his life, and Emmerich would've been briefing Liquid on how to use PAL. But remember, Ocelot told Liquid that Snake 'didn't have any keys on him' which was total bullshit. Ocelot was fucking around because his goal was to ensure that no actual nuclear launch occurred.
Liquid was genuinely trying to off Snake by the time Snake escaped from his cell. Up until then, he was monitoring Snake's movements, keeping things plausibly intense, and would capture him when necessary. Liquid knew what Snake was capable of, at least on paper, and also knew if he didn't provide a sufficient battleground, Snake would eventually suspect the deeper plan. But Liquid realized he'd need to know how powerful Snake was in order to control him effectively during this fact finding manipulation. So he used FOXHOUND, and permitted them to engage and assess Snake's abilities. Doing so also smoked out a few unknowns, like Gray Fox.
Liquid made a fatal error in not killing Snake immediately. FOXDIE really put a damper on his day. Had Snake died right away, I'm thinking Ocelot might've been the one to neutralize FOXHOUND en masse by the time Liquid finally did figure out the PAL system.
You can find the thread here
And now to the original plan:
FOXHOUND originally did not need Snake. They planed to get the 2 codes from the DARPA Chief Donald Anderson and Arms Tech President Kenneth Baker. They had 2 people that were perfect for this job - Revolver Ocelot (torturer) and Psycho Mantis (mind reading/control). Too bad that Ocelot killed Donald Anderson before he could get his code, so they had to think of another plan.