A cooperative virtual multiple-input multiple-output (MIMO) system using two transmit antennas that implements bit-interleaved coded modulation (BICM) transmission and compress-and-forward (CF) relay cooperation among two receiving nodes is presented here. To perform CF cooperation, we propose to use standard source-coding techniques for virtual MIMO detection, based on the analysis of its expected rate bound and the tightness of the bound. Since the relay and the destination are closely spaced, the authors first assume an error-free conference link between them, to focus on investigating the achievable gain from the CF cooperation. Then the system throughput expression and upper bounds on the system error probabilities over block fading channels are derived. The results show that the relay enables the proposed cooperative virtual-MIMO system to achieve almost ideal MIMO performance with low source-coding rates. Furthermore, when we consider a non-ideal cooperation link for practical considerations, a channel-aware adaptive CF scheme is proposed, so that the relay could always adapt its source-coding rate to meet the data rate on the non-ideal link. Owing to the short-range communication and the proposed scheme, the impact of the non-ideal link is too slight to impair the system performance significantly.