DISEASE CHARACTERISTICS:

• Documented diagnosis of 1 of the following:

  • Myelodysplastic syndromes (MDS) lasting ≥ 3 months according to WHO criteria

    • Disease must not be secondary to treatment with radiotherapy, chemotherapy, and/or immunotherapy for malignant or autoimmune diseases
  • Non-proliferative chronic myelomonocytic leukemia (WBC < 12,000/mm³)

• International prognostic scoring system (IPSS) category of low- or intermediate-1-risk MDS as determined by cytogenetic analysis

  • Cytogenetic analysis required if current bone marrow biopsy is a dry tap

  • Patients with cytogenetic failure and < 10% marrow blasts are eligible

    • Patients with cytogenetic failure must have prior cytogenetic results (FISH is not a substitute) within 6 months after completion of the last type of MDS treatment (in this case, growth factors are not considered a type of MDS treatment).
• Must have symptomatic anemia with hemoglobin < 9.5 g/dL* (transfusion independent or RBC transfusion-dependent [i.e., ≥ 2 units/month]) within the past 8 weeks NOTE: *For transfusion independent patients, ≥ 2 pre-transfusion or un-transfused hemoglobin values are required

• Must have failed treatment with an erythropoietic growth factor OR have a low probability of response to rhu-erythropoietin, as defined by the following:

  • Prior erythropoietin failure: requires ≥ 40,000 units epoetin alfa/week for 8 weeks or equivalent dose of darbepoetin alfa for 8 weeks and failed to achieve transfusion independence (in transfusion dependent patients) or failed to achieve ≥ 2 g rise in hemoglobin sustained for ≥ 4 weeks (in transfusion independent patients)
  • Low erythropoietin response profile: rhu-erythropoietin and epoetin alfa-naive patients receiving ≥ 2 U pRBC/month for ≥ 8 weeks and serum erythropoietin ≥ 500 mU/mL in the 8 weeks prior to study randomization for a hemoglobin < 9.5 g/dL

PATIENT CHARACTERISTICS:

• ANC ≥ 500/mm^3 (myeloid growth factor support independent)
• Platelet count ≥ 50,000/mm^3 (platelet transfusion independent)
• Serum creatinine ≤ 1.5 times upper limit of normal (ULN)
• Creatinine clearance ≥ 30 mL/min
• AST and ALT ≤ 2.0 times ULN
• Serum total bilirubin < 3.0 mg/dL
• Not pregnant or nursing
• Negative pregnancy test
• Fertile patients must use effective double-method contraception for ≥ 4 weeks before, during, and for 4 weeks after completion of study treatment
• No uncontrolled seizures or uncontrolled hypertension
• No history of other malignancy (except basal cell or squamous cell skin carcinoma or carcinoma in situ of the cervix or breast) unless the patient has been confirmed disease-free for ≥ 3 years
• No serious medical condition or any other unstable medical comorbidity, or psychiatric illness that would preclude informed consent or put the patient at unacceptable risk during study treatment
• No thromboembolic events within the past 3 years
• No known allergic reaction to epoetin alfa (Procrit®) or human serum albumin
• No prior desquamating (blistering) rash from thalidomide
• No prior allergic reactions to thalidomide ≥ grade 3
• No known HIV-1 seropositivity

• No documented iron deficiency

  • Must have documented bone marrow iron stores (if marrow iron stain is not available, transferrin saturation must be > 20% or serum ferritin > 100 ng/mL)
• No clinically significant anemia resulting from iron, B_12, or folate deficiencies, autoimmune or hereditary hemolysis, or gastrointestinal bleeding

PRIOR CONCURRENT THERAPY:

• See Disease Characteristics
• No prior lenalidomide
• Prior thalidomide allowed
• More than 8 weeks since prior cytotoxic chemotherapeutic agents or experimental agents (agents that are not commercially available) for the treatment of MDS

• At least 28 days since prior non-transfusion therapy, including all types of growth factors, for MDS

  • Concurrent prophylactic hydrocortisone to prevent transfusion reaction allowed
• Concurrent steroids for adrenal failure, hormones for noncancer-related conditions (e.g., insulin for diabetes), or intermittent dexamethasone as an antiemetic allowed