RATIONALE: Thalidomide may improve the immune system's ability to fight myelodysplastic syndrome.

PURPOSE: Phase II trial to study the effectiveness of thalidomide in treating patients who have myelodysplastic syndrome.

OBJECTIVES: I. Determine whether thalidomide improves cytopenias in patients with myelodysplastic syndromes. II. Determine the toxicity of this regimen in these patients. III. Determine whether this regimen down regulates the peripheral blood levels of tumor necrosis factor alpha, interferon gamma, and interleukin-12 and whether these changes correlate with clinical response in these patients. IV. Determine whether this regimen alters the peripheral blood T-cell subset distribution and whether these changes correlate with clinical response in these patients. V. Determine the effect of this regimen on bone marrow microvessel density and whether these effects correlate with clinical response in these patients.

OUTLINE: This is a multicenter study. Patients are stratified according to prognosis (favorable vs unfavorable). (Favorable stratum closed to accrual 12/28/01) Patients receive oral thalidomide once daily. Treatment continues for 5 years in the absence of disease progression or unacceptable toxicity. Patients are followed every 6 months for 1 year and then annually for 4 years.

PROJECTED ACCRUAL: A total of 20-58 patients (10-29 per stratum) will be accrued for this study within 20 months. (Favorable stratum closed to accrual 12/28/01)

DISEASE CHARACTERISTICS: Diagnosis of myelodysplastic syndromes (MDS) in the bone marrow, including any of the following subtypes: Refractory anemia (RA) (cytopenia) RA with ringed sideroblasts Chronic myelomonocytic leukemia RA with excess blasts (RAEB) RAEB in transformation Unclassified MDS Must have one of the following: Pretransfusion hemoglobin no greater than 10 g/dL Pretransfusion platelet count no greater than 50,000/mm3 Absolute neutrophil count less than 1,000/mm3 Patients who are ineligible for or refuse induction chemotherapy for RAEB in transformation are allowed (If candidate for and accept induction chemotherapy, must have failed at least 1 prior chemotherapy regimen)

PATIENT CHARACTERISTICS: Age: 18 and over Performance status: Not specified Life expectancy: Not specified Hematopoietic: See Disease Characteristics Hepatic: Bilirubin no greater than 1.5 times upper limit of normal (ULN) Alkaline phosphatase no greater than 3 times ULN AST no greater than 3 times ULN Renal: Creatinine no greater than 1.5 times ULN Other: Not pregnant or nursing Negative pregnancy test Fertile patients must use 2 methods of effective contraception 4 weeks before, during, and for 4 weeks after study (during study and for 4 weeks after study for males) No peripheral neuropathy by history or clinical exam No uncontrolled infection

PRIOR CONCURRENT THERAPY: Biologic therapy: At least 30 days since prior growth factors (i.e., epoetin alfa, filgrastim (G-CSF), sargramostim (GM-CSF), or thrombopoietic agent) for MDS No concurrent growth factors Chemotherapy: See Disease Characteristics At least 30 days since prior chemotherapy for MDS Endocrine therapy: At least 30 days since prior corticosteroids for MDS Concurrent chronic low-dose corticosteroids (less than 20 mg/day) for reasons other than MDS allowed Radiotherapy: Not specified Surgery: Not specified