Was Luther's belief that the church's foundation was faulty to begin with or that through time they fell into an apostate state and needed to be reformed back?
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Martin Luther wanted the Catholic Church to reform itself and return and refocus on the Bible and less on the words of the priests and pope, which he believed to have strayed from the original teachings. Most of the issues he dealt with in the 95 theses were very new, or only surfaced in the last few hundred years of the Catholic Church, so I'd say it's safe to say he had no problem with the early church, just the bureaucracy he perceived in the Catholic Church at the time.
Sources: Luther's Small Catechism, Lutheran Confirmation, and http://www.greatsite.com/timeline-english-bible-history/martin-luther.html