In this paper a novel polarization modulated direct detection (PM-DD) system is presented suitable both for binary and multilevel transmission. At the transmitter the optical field is polarization modulated by means of a standard polarization modulator. The receiver is based on the estimation of the Stokes parameters of the received optical field by means of a direct detection optical front end and a baseband electrical processing. The Poincare sphere rotation induced by the fiber is compensated by means of a pure electronic algorithm and the decision is performed in the Stokes space. The system performance is evaluated by means of an analytical model both if the only relevant noise source is the receiver thermal noise and in case that erbium doped optical amplifiers are present so to introduce amplified spontaneous emission (ASE) noise. The complete compatibility of the proposed system with a direct detection based optical network and the possibility to implement efficient multilevel modulation formats make it promising for applications in the future telecommunication environment. Moreover it can be useful in the design of future parallel super-computers.