Performance analysis is carried out to evaluate the effect of XPM on a Dispersion Managed (DM) 40Gb/s optical soliton transmission using direct detection, in the presence of Group Velocity Dispersion (GVD), Self-Phase Modulation (SPM), and Amplified Spontaneous Emission (ASE) in this chapter. It is found that for a distance of 2000 km, a power penalty of 1.9 dB is required to achieve a BER of 10-9 when XPM is taken into consideration. This power penalty increases with increasing neighbouring channel power and decreases with increasing channel separation. The system performance is also shown to be dependant on the system dispersion whereby the optimum dispersion is linked to the channel input power.