Fairly good, but not perfect.
"When one turns away from sin it is because having once been saved he is grateful to God for that and does so in the spirit of thankgiving." One turns from sin because the Spirit of God has regenerated his/her life and has shown that person that their sin is offensive to God. One continues to STRIVE to not sin, hopefully out of gratitude. Unfortunately, a motivation too often is not gratitude but a fear of harsh chastisement. This is due more to us seeing God the Father in a way we see our own fathers. If one has had a distant father, with that as one's reference, a lot of times we see God as distant. If one has had a harsh father, then one will try to please God for that reason. The reason should be out of love of God. But, being human, we get things goofed up sometimes.
" When we see one apparently a faithful Christian who goes out and sins, then that is because the appearances had failed us and he had not really been saved."
No. This part is incorrect. Christians will sin. Paul said (paraphrasing) "The good he would like to do, he does just the opposite and the things he wouldn't want to do those are the very things he does." But, the true Christian's want-to has changed. Our heart aches when we sin. We feel guilt towards the God who bought us. We feel sad because of our betrayal of the Savior. We don't disappoint God (Because how can you disappoint someone who already knew you were going to do something wrong), but we can grieve the Holy Spirit and displease God.
I think what you were seeing about external appearances is a combination of Jesus and John's words. If someone proclaiming themeselves to be a faithful Christian goes out and sins - and stays in their sin without any kind of regard for what they are doing - just continual and non-repentant willful behavior; chances are, that person's faith was a dead faith. They never really believed.
So the true sheep will stray from time to time, but the Shepherd goes and gets them and brings them back. They feel bad when they have strayed as well. And, certainly do experience some chastisement from time to time (but our Shepherd tends to be only as 'harsh' with us as it takes to get our attention).
There are other people whom our Shepherd never knew. They were never saved.
Matthew 7
13Enter ye in at the strait gate: for wide is the gate, and broad is the way, that leadeth to destruction, and many there be which go in thereat:
14Because strait is the gate, and narrow is the way, which leadeth unto life, and few there be that find it.
15Beware of false prophets, which come to you in sheep's clothing, but inwardly they are ravening wolves.
16Ye shall know them by their fruits. Do men gather grapes of thorns, or figs of thistles?
17Even so every good tree bringeth forth good fruit; but a corrupt tree bringeth forth evil fruit.
18A good tree cannot bring forth evil fruit, neither can a corrupt tree bring forth good fruit.
19Every tree that bringeth not forth good fruit is hewn down, and cast into the fire.
20Wherefore by their fruits ye shall know them.
21Not every one that saith unto me, Lord, Lord, shall enter into the kingdom of heaven; but he that doeth the will of my Father which is in heaven.
22Many will say to me in that day, Lord, Lord, have we not prophesied in thy name? and in thy name have cast out devils? and in thy name done many wonderful works?
23And then will I profess unto them, I never knew you: depart from me, ye that work iniquity.
I John 1
6If we say that we have fellowship with him, and walk in darkness, we lie, and do not the truth:
7But if we walk in the light, as he is in the light, we have fellowship one with another, and the blood of Jesus Christ his Son cleanseth us from all sin.
8If we say that we have no sin, we deceive ourselves, and the truth is not in us.
9If we confess our sins, he is faithful and just to forgive us our sins, and to cleanse us from all unrighteousness.
10If we say that we have not sinned, we make him a liar, and his word is not in us.
1 John 2
1My little children, these things write I unto you, that ye sin not. And if any man sin, we have an advocate with the Father, Jesus Christ the righteous:
2 John 2: 19They went out from us, but they were not of us; for if they had been of us, they would no doubt have continued with us: but they went out, that they might be made manifest that they were not all of us.
OK. So Luther did not encourage anyone to sin but he gave hope of salvation to those who do, and the hope was worded perhaps too provocatively for my prudish Catholic ears.
The question arises, given that good works are merely a visible reflection of the election, why would such an occasional sinner still show bad works?