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Performance degradation due to theinterplay between nodes crosstalk and nonlinear prop-agation in all optical networks is studied in this paper,and an analytical model based on the theory of mod-ulation instability is provided to evaluate this effect.It is shown that in anomalous dispersion regime, thepower penalty due to this effect is much greater thanthat obtained by using a corresponding linear model,It is also demonstrated that nonlinear enhancementof crosstalk can be mitigated by reducing the outputpower of the EDFA (erbium doped optical-fiber amp-plifier), but that will increase the cost of the systembecause more EDFAs are needed.