To solve error propagation problem in combination of pulse position modulation (PPM) and multilevel coding, we propose an iterative demodulation and decoding method based on "chain rule" of multistage decoding principle and give the hard decision iterative algorithm of 8-PPM multilevel coded modulation. The simulation results show that the error propagation is improved and the bit error ratio (BER) is decreased effectively by the hard decision iterative method. The larger the channel attenuation is, the more obvious the gain gets with the same iterations. Considering both improvement and cost, the iterations should be less than M times for M-order coded modulation system.