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The consequences of polarization instability on the performance of polarization sensitive free-space optical links based on vertical-cavity surface-emitting lasers are evaluated experimentally. We show that the signal-to-noise ratio decreases to unacceptably low values when the bit rate of the link exceeds 300 Mb/s, resulting in bit error rate floors. The amplitude noise resulting from the polarization instability is modeled in terms of a cyclostationary random process. It is shown that for any bit rate the signal-to-noise ratio can be accurately estimated from the measurement of the relative intensity noise spectrum.