This paper presents a theoretical and experimental analysis of saturated semiconductor optical amplifier (SOA)-based interferometric switching arrangements. For the first time, it is shown that such devices can provide enhanced intensity modulation reduction to return-to-zero (RZ) formatted input pulse trains, when the SOA is saturated with a strong continuous-wave (CW) input signal. A novel theoretical platform has been developed in the frequency domain, which reveals that the intensity modulation of the input pulse train can be suppressed by more than 10 dB at the output. This stems from the presence of the strong CW signal that transforms the sinusoidal transfer function of the interferometric switch into an almost flat, strongly nonlinear curve. This behavior has also been verified experimentally for both periodically and randomly degraded, in terms of intensity modulation, signals at 10 Gb/s using the ultrafast nonlinear interferometer as the switching device. Performance analysis both in the time and frequency domains is demonstrated, verifying the concept and its theoretical analysis.