RATIONALE: Drugs used in chemotherapy, such as bendamustine hydrochloride and dexamethasone, work in different ways to stop the growth of cancer cells, either by killing the cells or by stopping them from dividing. Lenalidomide may stimulate the immune system in different ways and stop cancer cells from growing. Giving bendamustine hydrochloride together with lenalidomide and dexamethasone may kill more cancer cells. PURPOSE: This phase I/II trial is studying the side effects and best dose of bendamustine hydrochloride and lenalidomide when given together with dexamethasone and to see how well they work in treating patients with relapsed multiple myeloma.