Luther's own words on the subject are quoted in:
The Third Sermon, March 11, 1522, Tuesday after Invocavit
In his sermon on 'How Christians should regard Moses' Luther makes it clear that he does not agree with making images nor with worshipping them but he draws the line at destroying other people's images.
Luther draws the line because he says :
And if you reply: The text says, “You shall not make any images,” then they say: It also says, “You shall not worship them.” In the face of such uncertainty who would be so bold as to destroy the images? Not I. But let us go further. They say: Did not Noah, Abraham, Jacob build altars? [Gen. 8: 20; 12: 7; 13: 4; 13: 18; 33: 20]. And who will deny that?
Since he feels that he cannot prove that someone is worshipping an image in an idolatrous manner (although there may be no doubt that they made the image) he feels it wrong to destroy the image.
He also accepts the fact that some might criticise the making of an ark and cherubim. They were not made to be worshipped and it was wrong to do so, but Luther feels the criticism is valid and accepts that if Iconoclasts are going to destroy other people's images then those whose images are destroyed have a claim on them.