With the growing interest in using binary phase only filters (BPOF) in optical correlators that are implemented on magnetooptic spatial light modulators, an understanding of the effect of errors in system alignment and optical components is critical in obtaining optimal system performance. We present simulations of optical correlator performance degradation in the presence of eight errors. We break these eight errors into three groups: 1) alignment errors, 2) errors due to a combination of component imperfections and alignment errors, and 3) errors which result solely from non-ideal components. Under the first group, we simulate errors in the distance from the object to the first principle plane of the transform lens, the distance from the second principle plane of the transform lens to the filter plane, and rotational misalignment of the input mask with the filter mask. Next we consider errors which result from a combination of alignment and component imperfections. These include errors in the transform lens, the phase compensation lens, and the inverse Fourier transform lens. Lastly we have the component errors resulting from the choice of spatial light modulator. These include contrast error and phase errors caused by the non-uniform flatness of the masks. The effects of each individual error are discussed, and the result of combining all eight errors under assumptions of reasonable tolerances and system parameters is also presented. Conclusions are drawn as to which tolerances are most critical for optimal system performance.