To be honest I didn’t even know this feature existed.
It’s good to know about this failsafe in case of a real failure but I wouldn’t want to rely on it during normal operation. Not with something so predictable and fixable as vibrations.
At this point I wouldn’t hunt further for the cause of the drone’s behavior and I can only speculate past the vibrations. Hunt more if the problem persists after the vibrations are gone and the drone is properly tuned.
Any analysis of altitude problems once Vibration Compensation has been activated is pointless for this reason:
The vehicle will not change mode but its altitude hold will be less accurate than normal. The vehicle may overshoot it’s altitude targets and/or respond more slowly to pilot input.
This FS is actually there to prevent a flyaway (to the moon) but it can cause problems of its own.