Signal-induced birefringence and dichroism in a tensile-strained bulk semiconductor optical amplifier (SOA) are demonstrated in a counterpropagation scheme. The polarization azimuth rotation and the change of ellipticity angle of the probe light are presented on the Poincare sphere and can be calculated by the Stokes parameters. All-optical wavelength conversion (inverted/noninverted and upconversion/downconversion) based on cross polarization modulation (XPolM) in SOAs are investigated. It is shown that a bit error rate (BER) of < 10(-9) can be achieved and an extinction ratio of > 9 dB can be obtained at a bit rate of 2.488 Gb/s with a 2(31) - 1 non-return-to-zero (NRZ) pseudorandom bit sequence (PRBS). Because of the larger birefringence effect induced by the pump light in the longer wavelength range, upconversion shows better performance than downconversion. Compared with the noninverted case, inverted wavelength conversion shows better performance due to the positive contribution from cross gain modulation (XGM), which takes place simultaneously with XPolM.