Whenever Barenaked Ladies perform this fantastic song live, it's obvious that Steve cuts in with "You don't exist" as a joke towards Ed. It's a lot easier to hear if you listen to them performing this song acoustically, especially on a radio show. On the studio recorded version, as said above, it's more difficult to hear.
As for "Change into some drier clothes", I've heard loads of variations to drier, such as magic, matching (BNL usually wear matching clothes in their latest gigs), and smaller.
But that's BNL for you, ever changing their songs on the spot to liven up the crowd and raise a cheer, it's what makes their live set so unbelievably amazing.