In this paper we experimentally demonstrate a novel, high phase-noise tolerant, optical dual polarization (DP) quadrature phase-shift keying (QPSK) communication system based on pilot-tone-aided phase noise cancellation (PNC) algorithm. Vertical cavity surface emitting lasers (VCSELs) with approximate 300 MHz linewidth are used as transmitters and local oscillators for coherent detection of optical DP-QPSK signals. The proposed system, with central wavelength at 1540.68 nm, operates at 40 Gb/s over 80 km single mode fiber (SMF) as part of a passive optical network (PON). The deployment of pilot-tone-aided PNC algorithm guarantees a bit error rate (BER) performance below the forward error correction (FEC) threshold. Moreover, we also evaluate a novel digital signal processing (DSP) algorithm for adaptive pilot tone detection.