The thermal stability of nanocrystalline ultra-soft magnetic (Fe98Zr2)1-xNx films with x=0.10-0.25 was studied using high-resolution transmission electron microscopy (HRTEM), positron beam analysis (PBA) and thermal desorption spectrometry (TDS). The results demonstrate that grain growth during the heat treatment is accompanied by an increase of the free volume, by nitrogen reallocation and desorption. All this can drastically deteriorate the ultra-soft magnetic properties. The desorption starts already at slightly elevated temperatures, below 100°C. However, most of the nitrogen leaves the sample at a temperature above 500°C.