This phase I/II trial studies the side effects and best dose of lenalidomide when given together with cyclophosphamide and to see how well they work in treating patients with previously treated hormone-refractory prostate cancer. Lenalidomide may stop the growth of prostate cancer by blocking blood flow to the tumor. Drugs used in chemotherapy, such as cyclophosphamide, work in different ways to stop the growth of tumor cells, either by killing the cells or by stopping them from dividing. Giving lenalidomide together with cyclophosphamide may kill more tumor cells.