Whether Luther was wrong - for you literalists - he called the Epistle of James the "Epistle of Straw".
Yeah he ran up against this:
James 1:22-25 (KJV)
But be ye doers of the word, and not hearers only, deceiving your own selves. For if any be a hearer of the word, and not a doer, he is like unto a man beholding his natural face in a glass: For he beholdeth himself, and goeth his way, and straightway forgetteth what manner of man he was. But whoso looketh into the perfect law of liberty, and continueth therein, he being not a forgetful hearer, but a doer of the work, this man shall be blessed in his deed.
This quip...from a letter to a friend, is often taken out of context. He was comparing the book of James to Romans, I believe. Having actually translated both books from the original languages, I think he felt a right to comment upon them in a personal letter...Luther never preached the book of James as unworthy. Contra popular (Catholic) belief, Luther also never removed James from the New Testament, which he translated.
About indulgences--while this was the proximate cause for the Reformation--Luther, and all the other Reformers, didn't see it as central, it was merely a symptom of deeper corruptions of doctrine within the Roman Church.