The correct answer is in fact the third option "Lauren would rather practice the piano than work in the garden."
The original sentence: "Lauren would rather practice the piano than to work in the garden" has a parallelism problem because the two actions "practice the piano" and "to work in the garden" are in different grammatical forms. The first is in verb form, whereas, the second is in infinitive form.
The third option: "Lauren would rather practice the piano than work in the garden" fixes the parallelism problem because it ensures that both actions are in the same grammatical form (verb form).