RATIONALE: Drugs used in chemotherapy use different ways to stop cancer cells from dividing so they stop growing or die. Combining chemotherapy with bone marrow transplantation may allow the doctor to give higher doses of chemotherapy drugs and kill more cancer cells.

PURPOSE: Phase II trial to study the effectiveness of combination chemotherapy consisting of busulfan and cyclophosphamide followed by bone marrow transplantation in treating patients who have acute or chronic leukemia or myelodysplastic syndrome.

OBJECTIVES: I. Determine the effect of marrow ablation with high dose busulfan/cyclophosphamide on engraftment, incidence of posttransplant relapse, incidence and severity of graft versus host disease (GVHD), and incidence and severity of nonGVHD posttransplant complications in patients with acute or chronic leukemia or myelodysplastic syndrome who are eligible for allogeneic bone marrow transplants from HLA identical/compatible donors but who cannot or should not receive total body irradiation as part of their cytoreductive regimen.

OUTLINE: 2-Drug Combination Cytoreductive Chemotherapy followed by Bone Marrow Transplant with, as indicated, CNS Prophylaxis. Busulfan, BU, NSC-750; Cyclophosphamide, CTX, NSC-26271; followed by Allogeneic Bone Marrow, AlBM; with, as indicated, Intrathecal Cytarabine, IT ARA-C, NSC-63878.

PROJECTED ACCRUAL: At least 15 patients will be accrued for this study.

DISEASE CHARACTERISTICS: Primary or secondary acute nonlymphocytic leukemia and acute lymphocytic leukemia in one of the following states: First or greater remission Early relapse Chronic myelogenous leukemia (CML) in one of the following states: First or greater chronic phase Treatment on this protocol is preferred to total body irradiation containing protocols for patients under 40 with CML in stable first chronic phase who are otherwise eligible for allogeneic bone marrow transplantation Accelerated phase Myeloid or lymphoid blast crisis Myelodysplastic syndromes of the following types: Refractory anemia Refractory anemia with ringed sideroblasts Refractory anemia with excess blasts Chronic myelomonocytic leukemia Multiple myeloma Non-Hodgkin's lymphoma HLA identical bone marrow donor available Unable to undergo total body irradiation because of one of the following reasons: Under age 2 (CNS still growing and at high risk of permanent radiation injury) Prior high dose radiotherapy to the brain, lungs, heart, liver, or abdomen In relapse following allogeneic or autologous transplant using total body irradiation for ablation, but eligible for a second transplant No current CNS involvement

PATIENT CHARACTERISTICS: Age: 50 and under (patients aged 51-55 accrued on a case-by-case basis after discussion and approval by the BMT service) Performance status: Karnofsky 70-100% Life expectancy: Greater than 8 weeks Hematopoietic: Not specified Hepatic: Bilirubin less than 1.5 mg/dL AST no greater than 3 times normal Neither value increasing for at least 2-4 weeks prior to transplant Renal: Creatinine less than 2 times normal and not rising for at least 2-4 weeks prior to transplant OR Creatinine clearance greater than 80 mL/min Cardiovascular: Left ventricular ejection fraction at least 50% Cardiac function good Pulmonary: No severe restrictive lung disease No chronic obstructive pulmonary disease Other: No active viral or bacterial infection at transplant No coexisting medical problem that would significantly increase the risk of the transplant procedure Not pregnant

PRIOR CONCURRENT THERAPY: Prior therapy allowed, including prior bone marrow transplant