The Cosmology Large Angular Scale Surveyor (CLASS) is a four-telescope array observing the largest angular scales (2 less than or similar to l less than or similar to 200) of the cosmic microwave background (CMB) polarization. These scales encode information about reionization and inflation during the early universe. The instrument stability necessary to observe these angular scales from the ground is achieved through the use of a variable-delay polarization modulator as the first optical element in each of the CLASS telescopes. Here, we develop a demodulation scheme used to extract the polarization timestreams from the CLASS data and apply this method to selected data from the first 2 yr of observations by the 40GHz CLASS telescope. These timestreams are used to measure the 1/f noise and temperature-to-polarization (T -> P) leakage present in the CLASS data. We find a median knee frequency for the pair-differenced demodulated linear polarization of 15.12 mHz and a T -> P leakage of <3.8 x 10(-4) (95% confidence) across the focal plane. We examine the sources of 1/f noise present in the data and find the component of 1/f due to atmospheric precipitable water vapor (PWV) has an amplitude of 203 +/- 12 mu K-RJ root s for 1 mm of PWV when evaluated at 10 mHz; accounting for similar to 17% of the 1/f noise in the central pixels of the focal plane. The low levels of T -> P leakage and 1/f noise achieved through the use of a front-end polarization modulator are requirements for observing of the largest angular scales of the CMB polarization by the CLASS telescopes.