One thing, the day of the wedding, the bride's dress will be red so I would suggest avoiding that color for your clothes especially if you decide to wear a sari. And no white, that is the color worn to Hindu funerals. Bright colors are the order of the day.
Me, I loved wearing a sari to the Indian weddings I've attended. Made me feel very elegant. But alas, they hang in the closet awaiting the next wedding invitation. As most weddings are multi-day events, you could wear a sari for the actual wedding and your western clothes for the other events. I think you will love looking back at your photos and seeing yourself all dressed up and "participating in the process".
Yes, money is more than appropriate as a gift. If the jewelry not 18K gold (or higher content) then don't bother.

. Also, if this is any sort of "society" wedding, the bling will be blinding.
So have fun shopping over there! You can purchase a sari for not too much money...especially if you go for a fabric that has a nice gold or silver print (to help create a nice rich look) rather than having hand embellishing. Also, you can find some inexpensive, pretty sandals to wear with your Indian-style clothes...which seems to be the typical footwear.
Go on Youtube and look up how to wrap a sari to get used to the idea. Above all, have fun!!!!