Flat-panel cone-beam CT (FP-CBCT) is a promising imaging modality, partly due to its potential for high spatial resolution reconstructions in relatively compact scanners. Despite this potential, FP-CBCT can face difficulty resolving important fine scale structures (e.g, trabecular details in dedicated extremities scanners and microcalcifications in dedicated CBCT mammography). Model-based methods offer one opportunity to improve high-resolution performance without any hardware changes. Previous work, based on a linearized forward model, demonstrated improved performance when both system blur and spatial correlations characteristics of FP-CBCT systems are modeled. Unfortunately, the linearized model relies on a staged processing approach that complicates tuning parameter selection and can limit the finest achievable spatial resolution. In this work, we present an alternative scheme that leverages a full nonlinear forward model with both system blur and spatially correlated noise. A likelihood-based objective function is derived from this forward model and we derive an iterative optimization algorithm for its solution. The proposed approach is evaluated in simulation studies using a digital extremities phantom and resolution-noise trade-offs are quantitatively evaluated. The correlated nonlinear model outperformed both the uncorrelated nonlinear model and the staged linearized technique with up to a 86% reduction in variance at matched spatial resolution. Additionally, the nonlinear models could achieve finer spatial resolution (correlated: 0.10 mm, uncorrelated: 0.11 mm) than the linear correlated model (0.15 mm), and traditional FDK (0.40 mm). This suggests the proposed nonlinear approach may be an important tool in improving performance for high-resolution clinical applications.