In the context of low-cost video encoding, distributed video coding (DVC) has recently emerged as a potential candidate for uplink-oriented applications. This paper builds on a concept of correlation channel (CC) modeling, which expresses the correlation noise as being statistically dependent on the side information (SI). Compared with classical side-information-independent (SII) noise modeling adopted in current DVC solutions, it is theoretically proven that side-information-dependent (SID) modeling improves the Wyner-Ziv coding performance. Anchored in this finding, this paper proposes a novel algorithm for online estimation of the SID CC parameters based on already decoded information. The proposed algorithm enables bit-plane-by-bit-plane successive refinement of the channel estimation leading to progressively improved accuracy. Additionally, the proposed algorithm is included in a novel DVC architecture that employs a competitive hash-based motion estimation technique to generate high-quality SI at the decoder. Experimental results corroborate our theoretical gains and validate the accuracy of the channel estimation algorithm. The performance assessment of the proposed architecture shows remarkable and consistent coding gains over a germane group of state-of-the-art distributed and standard video codecs, even under strenuous conditions, i.e., large groups of pictures and highly irregular motion content.