Fenders for the bike. It will help keep you dry by preventing spray from the tires coming up your back or on on to your shoes and pants.

For rain gear it all depends. My commutes are usually no more than a few miles so breathe-ability is not a huge concern. I have some $25 Field & Stream rain jacket I got from a sporting good store and the $30 matching pair of pants. The jacket has vents but I still get condensation build up. I only wear it when it is really pouring outside. In a gentle rain a regular old wind breaker works well for me.