The use of LS estimation with Vector OFDM
Sorry for late reply .. I was little bit busy. 

you have mistakes in your code. Although mythology is right, you have mistakes in some parameters. 

Check this paper "Low-Complexity Equalization of Orthogonal Signal-Division Multiplexing in Double-Selective Channels" Then,  Modify your code following part II in that paper. It's with details there, if you got any issue, you'd let me know. 
Regarding the channel estimation, you follow the same way of conventional OFDM scheme except for V-OFDM you use Vectors pilots instead of symbol pilots.  I means in that mentioned paper, you will have vector of size $M$ used as pilots. 

Good luck