Sparse orthogonal matrices are proposed to improve the convergence property of expectation propagation (EP) for sparse signal recovery from compressed linear measurements subject to known dense and ill-conditioned multiplicative noise. As a typical problem, this letter addresses generalized spatial modulation (GSM) in over-loaded and spatially correlated multiple-input multiple-output (MIMO) systems. The proposed sparse orthogonal matrices are used in precoding and constructed efficiently via a generalization of the fast Walsh-Hadamard transform. Numerical simulations show that the proposed sparse orthogonal precoding improves the convergence property of EP in over-loaded GSM MIMO systems with known spatially correlated channel matrices.