All-optical time-division demultiplexing using a nonlinear fiber Sagnac interferometer switch (NSIS) is studied with respect to the two main causes that degrade the bit-error-rate (BER) performance: crosstalk and timing jitter. It is shown that unwanted cross-phase-modulation in the reference signal which counter-propagates to the control pulse, as well as the poor extinction of the switch itself, seriously degrades the extinction ratio of the switch, thus increasing the crosstalk from other channels. Numerical calculations clarify the effect of the switching window width, window shape, and the multiplexed channel number on the power penalty in terms of BER performance, Timing jitter between the signal and control pulses is investigated as another degradation factor that causes an error floor in BER performance, It is found that the minimum BER is obtained when the window width is set to the time slot width and the rms value of the jitter must be less than 1/14.1 times the time slot width to ensure that BER < 10(-12). To confirm this analysis, precise measurements of BER performance with NSIS-based demultiplexing are performed using amplified gain-switched laser diode pulses, as the relative timing jitter, switching window width, and multiplexed channel number are varied, Good agreement with the analysis is shown. Finally, optimum system design based on a small power penalty and low error door is described, It is shown that the NSIS has the potential of demultiplexing a 160-Gb/s or 320-Gbis optical data stream into its 40-Gbis constituents with only a 4-dB or 7-dB power penalty,