We have demonstrated the generation of a 320 Gb/s Nyquist-OTDM signal by rectangular filtering on an RZ-OTDM signal with the filter bandwidth (320 GHz) equal to the baud rate (320 Gbaud) and the reception of such a Nyquist-OTDM signal using polarization-insensitive time-domain optical Fourier transformation (TD-OFT) followed by passive filtering. After the time-to-frequency mapping in the TD-OFT, the Nyquist-OTDM signal with its characteristic sinc-shaped time-domain trace is converted into an orthogonal frequency division multiplexing (OFDM) signal with sinc-shaped spectra for each subcarrier. The subcarrier frequency spacing of the converted OFDM signal is designed to be larger than the transform-limited case, here 10 times greater than the symbol rate of each subcarrier. Therefore, only passive filtering is needed to extract the subcarriers of the converted OFDM signal. In addition, a polarization diversity scheme is used in the four-wave mixing (FWM) based TD-OFT, and less than 0.5 dB polarization sensitivity is demonstrated in the OTDM receiver.