We characterize the intermodulation distortion of high power and efficient frequency conversion of modulated optical signals based on sum frequency generation (SFG) in a periodically poled potassium titanyl phosphate (KTP) waveguide. Unwanted frequency two-tone spurs are generated near the converted signal via a three-step cascaded three-wave mixing process. Computer simulations describing the process are presented along with the experimental measurements. High-conversion efficiencies and large spur-free dynamic range of the converted optical signal are demonstrated.