ARAINY late-spring afternoon, folks sheltering damply beneath the awning of the old Kresge's building at Seventh and E NW. Just above their heads a theater is being born.

Upstairs, in what was once a stockroom, they're building a summer home for Woolly Mammoth Theater's two-play repertory. A number of jumbled toolboxes are scattered around the sawdusty space, along with a makeshift bar, a pinball machine, a pool table. Someone wheels swiftly by with a white grocery cart, a prop from "Life and Limb." Another assistant, adjusting lights, teeters on a red stepladder.

"This is gonna be a prob-lem!" calls out a voice that sounds both in-charge and harried. The voice belongs to set and lighting designer Lewis Folden, who has worked with nearly every small Washington theater. Folden recently moved to New York, where he's been designing for off-Broadway theaters -- he just finished designing a set to be used for the 13 plays in the Ensemble Studio Theater's "Marathon '87" repertory.

Woolly's summer season, which opens this Friday with T.J. Edwards' new "National Defense," is the first work Folden has done in Washington since the move, and though it promises to be slightly less of a problem, it is no less of a challenge. Folden's mission is to sculpt a workable theater space out of an ancient stockroom.

"Designing for repertory is a completely different thing," he says. "Here we're taking two plays which in spirit are so different, and working them into a space that has its own character." After carefully reading the scripts ("Very seldom do I design for a play that I don't have any faith in"), Folden conferred separately with the directors of both plays, then began his plan.

"Since 'National Defense' is really a story play, it needs a slightly more traditional approach," Folden explains. "It takes place on the fourth floor of an old Catholic school, which the space already suggests. We'll just black out the windows, and the audience will surround the stage on three sides."

The second play, John Patrick Shanley's "Savage in Limbo," is "more an exploration of character and environment," Folden says. "It's a real world, but not a real world. The world is a barroom, somewhere, anywhere -- it's not 'Cheers.' Everybody, at some point in their life, has been in this bar.

"In this case, it's not really how the set looks, it's how it feels," Folden says. Xs mark the spots where tables and chairs will go; the room will be lit primarily by a neon bar sign, streetlamps through the unshaded windows, the glow of the pinball machine. "We want the light and noises from the street to be part of it." "Each performance will be subtly different. In fact, we had thought of handing chairs to people as they came in, and having them find a place to sit, then having the play take place wherever it will." Folden says the notion was dismissed as "too precious."

Woolly Mammoth technical director Paul Martin says the transformation began March 1. His team of five or so workers had to bring in electricity, hang lighting grids, build a dressing area ("Very elegant -- plywood on top of 2x4s," he jokes), and most important, install a large air-conditioning unit. The WPA had painted the old room white, and Folden ordered it painted back to the slightly dingy, semi-decayed look it had had. Production manager Nancy Turner says the combined production budget for two shows is around $4,000. "It's amazing what you wind up getting for that kind of money. But there's never enough money," Turner says. "You're always stretching what you've got."

More dish on "Defense": The director is Jeff Davis, who was Round House artistic director for seven years, and left in 1984 to be events producer at Capital Centre. This is his first play since. Coincidentally, the cast includes current Round House artistic director Jerry Whiddon.

"National Defense" made its debut at Source Theater's Washington Theater Festival, the seventh edition of which runs July 13 to August 9. Others that began as Source festival plays: Edwards' "New York Mets," which won the best new play award at Helen Hayes; Steve Hayes' "Shady Side"; Gary Boehlke's "The Perfect Defense," which has been produced in London; Ron Wood's "Four Men From Annapolis" which opens at Touchstone next week; and Ernie Joselovitz's "Nicky and the Theater for the New World."

Tall Order Dep't.: A recent press release from Living Stage Theater:

Looking for a pianist who sings very well. Must be able to create rituals and tone-poems on themes that are deeply important to our planet's celebration and survival -- themes that are important to you as an artist living in our world of anguish, terror, despair, hope and beauty . . . We are looking for an artist who loves theater and is willing to make a long term commitment to using their talent to reawaken the dignity, courage, and artistry of all peoples. NO PHONE CALLS!

When Leo Sullivan died last week, Washington theater lost a good friend. Sullivan, a former Washington Post amusements editor, turned his talents toward theater, and as director of public relations for the Kennedy Center, advisor to the Georgetown Theater Workshop, and founding member of the Helen Hayes and Richard L. Coe awards for theater, he was a confidant to theater folk both in and out of town. Sullivan's memorial service is this Friday, 11 a.m. at Holy Trinity.

Bulletin Board: Out-there magicians Penn & Teller are extended again at Baltimore's Center Stage, through June 28 . . . Those few who haven't seen Stephen Wade in his eternally running "Banjo Dancing" -- and even those multitudes who have -- might enjoy Wade's TV special "Catching the Music" Tuesday at 8 on Channel 26 . . . Two "Confessions": Ray Stricklyn's "Tennessee Williams: Confessions of a Nightingale" will close after Sunday's performance at New Playwrights' Theater. Shay Duffin will fill in, returning Tuesday through Saturday with "Confessions of an Irish Rebel," his popular portrait of Brendan Behan . . . Tucked away in a Sunday ad for the Kennedy Center Theater Guild's fall season was a hint that "Les Mise'rables" may return to the KenCen next July, when the first national touring company hits the road. A "Les Mis" spokesman sez "C'est vrai."