No, Luther's statement won't lead to damnation for a Christian and it won't make a non-Christian any worse off than before. I mean how much worse off can one get than going to Hell? You can't be "more" going to Hell. Luther's point was made during a sermon and I'm sure the true meaning was not lost on his congregation. Knowing Luther and what he went through before coming to Christ, it makes perfect sense - though he was being just a tad awnry (sp???) when saying it as the "meek and never controversial" :) Luther could be.
Let us say you as a married Christian are tempted with adultery and your pastor tells you "go ahead, and sleep with her, boldly". Do you think it will be helpful to you?
Likewise many non-Christians today do not think much of sexually sinful behaviors. For example, the neopagan culture goes out of its way to teach that homosexuality is but another choice of life style. Do you think that gay propaganda is helping or hurting or is indifferent to bringing people to Christ? Who is more likely to respond to an altar call at your church, one practicing homosexuality or one used to resisting temptations?