OUTLINE: This a randomized, multicenter study. Patients are stratified according to age (40 and under vs 41-55) and diagnosis and International Prognostic Scoring System (IPSS) risk group (myelodysplastic syndrome (MDS)/IPSS - intermediate 1 vs MDS/IPSS - intermediate 2 vs MDS/IPSS high risk vs MDS related acute myeloid leukemia). Patients are randomized to one of two treatment arms. Arm I: Patients receive busulfan IV over 2 hours every 6 hours on days -7 to -4 for a total of 16 doses. Arm II: Patients receive cyclophosphamide IV over 2 hours on days -5 and -4. Patients receive total body irradiation (TBI) twice a day on days -3 to -1; peripheral blood stem cell transplantation from genotypically HLA identical sibling on day 0; cyclosporine IV every 12 hours on days -1 to 60, and then tapering in the absence of graft versus host disease; and methotrexate IV on days 1, 3, 6, and 11. Patients are followed every 6 months for 5 years.