An alternative to a classical wavelength interferometer (an array of hand-assembled etalons consisting of two semi-transparent mirrors separated by a fixed-cavity) is the implementation of wide band tunable filter using Micro-Electro-Mechanical Systems (MEMS) technology. This approach will allow a single tunable device to replace an array of fixed-cavity filters reducing cost and parts. MEMS technology offers many advantages, including scalability for wide tuning range, sensitivity for precision sensing, and batch fabrication capability for cost reduction While at the same time, MEMS technology introduces many new challenges, which include fabrication yield, device reproducibility, and fabrication imperfections - all are factors seriously limiting performance of MEMS interferometers. Without defects, reflectance must be greater than 99.69% in order to achieve finesse of 1000 to be useful for DWDM applications. Though, the presence of defects limits performance and becomes more pronounced at higher reflectance values. For example, component misregistration while fabricating MEMS interferometer with 95% and 98% reflectance values, result in the reduction of effective finesse of 10% and 42%, respectively. This paper discusses several models for analyzing imperfections in MEMS tunable-cavity interferometers. Based on thermal expansion and component misregistration analysis, we conclude that a passive MEMS-based filter cannot achieve performance required for DWDM applications.