Nonlinear amplification in wireless systems results in in-band distortion which degrades system performance. The effect of nonlinear distortion is more severe in multiple-input multiple-output (MIMO) systems because signal encoding at the transmitter (such as transmitter precoding in singular value decomposition (SVD)-based MIMO) results in signals with higher peak-to-average ratio (PAPR) than single-input single-output (SISO) systems. In this paper, the effect of nonlinear amplification on the performance of a MIMO system is analyzed. The performance analysis is based on relating in-band distortion to system BER of a M-QAM modulated signals transmitted over a MIMO Rayleigh fading channel. It is shown that transmitter precoding results in increased in-band distortion and hence, increased system BER over the case when no precoding is used. The results presented in this paper can be used to derive limit of nonlinearity which allow energy efficient MIMO systems.