We propose a cost-effective digital coherent scheme with low-complexity digital signal processing (DSP) for short-reach optical interconnection. Differential 8-ary quadrature amplitude modulation (D8QAM) with 1-decision-aided adaptive differential decoding bypasses carrier recovery and enables cycle-slip-free operation. We experimentally demonstrate that the receiver sensitivity of 400-Gb/s D8QAM is insensitive to the laser type, and is the same as 400-Gb/s 16QAM in the case of 2-km transmission with a distributed feedback (DFB) laser. The proposed adaptive equalizer (AEQ) using real-valued finite impulse response (FIR) filters and shorter tap lengths for the real-imaginary filters allows hardware-efficient implementation with high robustness to the receiver-side timing skew. In the case of 400-Gb/s D8QAM 10-km transmission, our AEQ achieves comparable performance as conventional 4×4 real-valued multi-input multi-output (MIMO) and the existing simplified AEQs with complexity reduction of 50% and 14% respectively.