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
You cannot really say that he did not have issues with the early church because Luther struggled with a lot of principles the early church accepted as truth. For example, the importance of works in relation to faith. Luther was unable to understand how they coexisted. Luther felt the books of James, Jude and Revelation were inferior to the rest of the bible. the bible that was canonized by the early Church. That theology would have been viewed as ridiculous by the early church or more accurately as heresy.