Why linear discriminant analysis is sensitive to cross validation (LDA overfit problem)? I've a set of 500+ observation (200+ feature vector dimension) of 7 classes and want improve my classification rate (with SVM or KNN). 
To reduce the dimension and transform the feature matrix to a lower dimension (due to curse of dimensionality), I'm using LDA. It maps my high dimensional data to lower 6 dimensions. But with applying cross validated LDA it doesn't help and degrade the results dramatically. 
When I even use leave one out (LOOCV) to calculate LDA projection matrix, it is calculated by holding out just one observation. My question is why even in this case the projection matrix ($W$) is so over-fitted and sensitive to cross validation? Intuitively I've hold out just one sample but it seems the projection matrix can't map the held out observation correctly. 
I'm interested in two parts:


*

*The math behind such experiment. 

*Some consideration or solution for better cross validated feature transform instead of LDA.


Update


*

*based on @Andrew M, initial response, I've different number of observation per class. For example one class has example 120 observation while the other has only 40. 

 A: Looks like your sample size is not a lot bigger than the dimensionality of the data (feature set size). That can be a problem for LDA and it can overfit. Since it relies on computing the within-class scatter matrix which requires the scenario of N >> p (# samples >> # features).
One quick way to check if you are overfitting with LDA is to look at the projections. As a result of LDA you have C-1 projection vectors. I would try projecting data on those vectors one by one and visualize it. If LDA indeed overfitted - you will see that the classes separate almost perfectly and are clustered around separate points on the projected axis. (In case of p > N all the samples would get projected onto C different points with classes separated perfectly).
This effect was termed "data piling" by J. S. Marron in his paper Distance Weighted Discrimination. For reference of how it might look like you can check the figures in that paper.
So assuming that is what happening I would do one of the following:
1) Use a regularized version of LDA. The simplest idea is probably just adding some constant to the diagonal of within-class scatter matrix in order to increase the variance in all directions. But there are a lot of different way you can regularize LDA.
2) Use another method for dimensionality reduction that is adapted to your scenario of small sample size. Distance Weighted Discrimination (DWD) might be a good choice here.
3) Get more samples (always recommended)
[1] Distance-Weighted Discrimination. J. S. Marron, Michael J. Todd and Jeongyoun Ahn. Journal of the American Statistical Association Vol. 102, No. 480 (Dec., 2007), pp. 1267-1271
A: 
When I even use leave one out (LOOCV) to calculate LDA projection matrix, it is calculated by holding out just one observation. My question is why even in this case the projection matrix ($W$) is so over-fitted and sensitive to cross validation? Intuitively I've hold out just one sample but it seems the projection matrix can't map the held out observation correctly. 

Well, the cross validation is probably doing what it is supposed to do: with almost the same training data, performance is measured. What you observe is that the models are unstable (which is one symptom of overfitting). considering your data situation, it seems totally plausible to me that the full model overfits just as badly. 
Cross validation does not in itself guard against overfitting (or improve the situation) - it just tells you that you are overfitting and it is up to you to do something against that. 
Keep in mind that the recommended number of training cases where you can be reasonably sure of having a stable fitting for (unregularized) linear classifiers like LDA is n > 3 to 5 p in each class. In your case that would be, say, 200 * 7 * 5 = 7000 cases, so with 500 cases you are more than an order of magnitude below that recommendation. 

Suggestions: 


*

*As you look at LDA as a projection method, you can also check out PLS (partial least squares). It is related to LDA (Barker & Rayens: Partial least squares for discrimination J Chemom, 2003, 17, 166-173). 
In contrast to PCA, PLS takes the dependent variable into account for its projection. But in contrast to LDA (and like PCA) it directly offering regularization.  

*In small sample size situations where n is barely larger than p, many problems can be solved by linear classification. I'd recommend checking whether the nonlinear 2nd stage in your classification is really necessary. 

*Unstable models may be improved by switching to an aggregated (ensemble) model. While bagging is the most famous variety, you can also aggregate cross validation LDA (e.g. Beleites, C. & Salzer, R.: Assessing and improving the stability of chemometric models in small sample size situations Anal Bioanal Chem, 2008, 390, 1261-1271.
DOI: 10.1007/s00216-007-1818-6
)

*Because of the pooling of the covariance matrix, I'd expect your uneven distribution of cases over the different classes to be less difficult for LDA compared to many other classifiers such as SVM. Of course this comes at the cost that a common covariance matrix may not be a good description of your data. However, if your classes are very unequal (or you even have rather ill-defined negative classes such as "something went wrong with the process") you may want to look into one-class classifiers. They typically need more training cases than discriminative classifiers, but they do have the advantage that recognition of classes where you have sufficient cases will not be compromised by classes with only few training instances, and said ill-defined classes can be described as the case belongs to none of the well-defined classes.
A: LDA is optimal when the distribution of features, conditional on the labels is Gaussian with equal, but unstructured covariance matrices.  If conditional Gaussian model doesn't hold approximately, you may not want to use LDA.  The results of your LOO-CV suggests


*

*The conditional Gaussian model is a poor fit and/or 

*You don't have enough observations to precisely estimate the within-class covariance matrix.

