An exact probability of error expression is derived for a narrow deviation binary continuous-phase frequency-shift keying (CPFSK) coherent optical receiver utilizing differential detection (CPFSK-DD). The result is expressed in terms of the Marcum Q-function and takes into account the non-Gaussian noise statistics at the decision moment, laser phase noise, and, unlike previous analyses, noise correlation. It is demonstrated that the noise correlation can lead to sensitivity penalties in excess of 0.5 dB, when using tight IF filtering, and should thus not be ignored in any detailed CPFSK-DD receiver analysis. >