The all-optical signal processing performance of a Mach-Zehnder interferometer (MZI) is investigated. Calculated switching windows are used to investigate and understand the physical mechanisms limiting the high speed performance. Especially, the co- and counter-propagating operation of the MZI is discussed and important differences in the performance for the two schemes are addressed. The non-regenerative all-optical clear and drop functionality is investigated for a 2, 4 and 8 x 40 Gbit/s signal, showing good performance in the co-propagating case. Regenerative simultaneous clear and drop functionality in a single MZI is demonstrated experimentally and compared to the large signal model predictions.