We investigate the impact of channel spacing and nonlinear transmission over 120 km of standard single mode fiber for a 10 Gbit/s long-reach wavelength division multiplexed passive optical network (WDM-PON). We employed polarization division multiplexed quadrature phase shift keying (PDM-QPSK), which allowed data transmission at 3.125 GBaud, including a 25% overhead for forward error correction. To receive this spectrally efficient modulation format, a digital coherent receiver was employed, allowing for both frequency selectivity and an increased sensitivity of -45 dBm (25 photons/bit).We investigated a channel spacing as low as 5 GHz, for which the loss budget was 48.6 dB, increasing to 54.0 dB for a 50 GHz grid.