"Luther’s terror over his own Salvation was not a fear of burning in hell for all of eternity. In fact he didn’t believe in a physical hell, but more of a psychological hell. His fear was of death, not a death of torment but a death of annihilation, a death that meant nothingness after life on earth. It was either everlasting heaven immediately upon death or – nothing. What kind of a “Christian theologian” believes or HAS EVER believed that?"As far as I can tell, the above thought was snatched from Richard Marius, The Christian Between God and Death, p. 61 and perhaps other sections of this book. If it was not, I'll adjust this post. I've done a brief overview of this book here. For Marius, Luther was not the heroic God believer in a cosmic spiritual battle. Luther was a man who questioned whether or not God even exists, and was terrified of death.
Marius first records Luther describing hell as a place of conscious suffering in his commentary on Psalm 20. So, whatever the case, at some point Luther did indeed present evidence he believed in a physical hell, even according to Marius. Marius does his best to downplay this text, commenting that the description of hell "seem(s) like an afterthought."
Marius then presents material from Luther's commentary on Jonah and says "(Luther) never flatly denied the existence of hell, but came close to doing just that in his German commentary on the book of Jonah..." He then quotes Luther saying: "What hell may be in the last day, I am not altogether sure. I do not believe it is a special place where damned souls now exist like the place painters depict and servants of the belly [evidently the begging friars] preach it." Marius then remarks, "He cites Peter, Paul, and Jesus to argue Satan is not in hell but that he is in this world and in the air, and this could not be if hell were a particular place."
Here's though what Luther says in his commentary on Jonah about hell. Luther states:
"I am not so sure what hell is like before the Day of Judgment. The notion that hell is a specific place, now tenanted by the souls of the damned, as artists portray it and the belly servers preach it, I consider of no value, for we know that the devils are not yet in hell, but as Peter declares (2 Peter 2:4), they are “in ropes of nether gloom.” And St. Paul speaks of “powers and world rulers in the heavenly places” (Eph. 6:12). Christ also terms the devil “the ruler of this world” (John 14:30). To dominate the world, to commit so much villainy, and to create so much misery would be impossible for the devils if they were confined to hell. The agony of hell would surely deter them from this. Scripture also says of many saints that they went down into hell, as Jonah does here. Thus we hear this of Job (Job 17:13), and Jacob laments (Gen. 37:35): “I shall go down to Sheol to my son, mourning.” Scripture uses the word “Sheol” graphically to describe the anxiety and the agony of the dying. It adapts itself to their mood and feelings. And the dying do feel as though they were descending into hell, that is, into God’s wrath, although they know of no specific place to which they are departing. Everybody carries his hell with him wherever he may be so long as he feels the final anguish of death and God’s anger. In conformity with this, St. Peter in Acts 2:27 interprets Ps. 16:10 as spoken by Christ: “Thou dost not give Me up to Sheol, etc.,” and he says (v. 24) that God “loosed the pangs of death.” St. Peter wants us to think of “Sheol” as the pain of death that Christ felt when He died on the cross and when He departed this life and passed into the power of God. However, on the Last Day this will assume a different aspect. Then hell will be a particular place and the abode of those consigned to it and the eternal wrath of God. But let this suffice. It is not very important whether or not one pictures hell as it is commonly portrayed and described. The fact remains that hell is far worse now—and will be even worse than it is now—than anyone is able to say, depict, or imagine." (LW 19:74).Marius is simply wrong, as the context shows. Notice the qualifier Luther places above: "I am not so sure what hell is like before the Day of Judgment." Luther concludes, "However, on the Last Day this will assume a different aspect. Then hell will be a particular place and the abode of those consigned to it and the eternal wrath of God. But let this suffice. It is not very important whether or not one pictures hell as it is commonly portrayed and described. The fact remains that hell is far worse now—and will be even worse than it is now—than anyone is able to say, depict, or imagine."