Luther: What harm could it do if a man told a good lusty lie in a worthy cause and for the sake of the Christian Churches?

The following is from the web page Luther, Exposing the Myth, under the heading "On Lying":

Christ taught: “You are of your father the devil: and the desires of your father you will do. He was a murderer from the beginning: and he stood not in the truth, because truth is not in him. When he speaks a lie, he speaks of his own: for he is a liar, and the father thereof” [John 8:44.]Luther teaches: “What harm could it do if a man told a good lusty lie in a worthy cause and for the sake of the Christian Churches?” (Lenz: Briefwechsel, Vol. 1. Pg. 373.)

Luther Exposing the Myth says their stated purpose is to show that "from Luther’s own words we shall see him for what he really was, that is a rebellious apostate, who abandoned the faith and led many into apostasy from God under the guise of “reformation” in order to follow his perverse inclinations." With this quote, they attempt to show Luther taught contrarily to Jesus on lying.

Documentation 
Luther, Exposing the Myth cites "Lenz: Briefwechsel, Vol. 1. Pg. 373." Lenz refers to German historian  Max Lenz. Lenz edited the correspondence and documents related to Philip I, Landgrave of Hesse. "Briefwechsel" refers to correspondence, so this particular reference appears to be to his work,  Briefwechsel des Landgrafen Philipp mit Bucer. Vol. I. Leipzig. 1880. This volume covers materials from February 1540 to February 1546 from Phillip of Hesse. Here is page 373 which documents material from  the First protocol to the Eisenach Conference, July 15, 1540. The quote therefore is not specifically to one of Luther's writings. It is actually from documentation of what was said at this meeting.

The chances that Luther, Exposing the Myth actually used Lenz as the source for this quote are slim. If this source was used, the quote was mined out of a writing from an out-of-print book from something written in German and then translated into English.  As with other quotes used by this webpage, it was probably taken from Peter Wiener's Martin Luther, Hitler's Spiritual Ancestor, page 41. Wiener probably took the quote from Hartmann Grisar, Martin Luther, His Life and His Work (Maryland: Newman Press, 1930), p. 522 or Grisar's Luther IV page 51. Wiener uses two quotes in the same order and documentation as that presented by Grisar (and also Luther, Exposing the Myth does the same).  So the ultimate source for this quote is in this form is probably Grisar.

The quote exists is other forms: "What harm would it do, if a man told a good strong lie for the sake of the good and for the Christian church...a lie out of necessity, a useful lie, a helpful lie, such lies would not be against God, he would accept them." Simply Google book search this quote, and a number of hits occur. The quote in this form is actually two different quotes from two different documents. The second half would be found on page 375 of Lenz. In tracking down the quote in this form, see this discussion from Snopes.com, Questionable Quotes, "Martin Luther Quote."

Context
The relevant text in German from page 373 of Lenz reads:

In his book The Life and Letters of Martin Luther,  Preserved Smith provides (at the very least) a brief overview of the details of the historical context surrounding this quote  (The Bigamy of Philip of Hesse 1540, pp. 373-386), as does Martin Brecht, Martin Luther the Preservation of the Church Vol 3 1532-1546 (pp. 205-215). Both of these sources present a good compare and contrast. Smith isn't always sympathetic to Luther, Brecht though typically will be.

The quote itself was the outcome the situation provoked by Landgrave Philip of Hesse. Philip, an important political figure for the early Protestants, went through a series of maneuverings attempting to justify taking a second wife. Smith recounts Philip began this effort as early as 1526, writing Luther for advice. Luther denied him any approval (p. 373).  Fast forward to 1539, Philip "determined Luther or no Luther" to take a second wife. Philip, convincing Bucer, sent him to get approval from Wittenberg.  The Wittenberg theologians noted that God intended monogamy, but conceded to Philip's bigamy, noting it as an exception. They denied it any sort of precedent becoming law, and intended it to be secret pastoral counseling. Brecht calls the advise "extremely risky and in all probability wrong from the very beginning" (p. 207).

Brecht was right, the  bigamy approval became public. This after some denial from Luther and the Wittenberg theologians. Brecht notes that at one point during this fiasco that had the Emperor called Philip to account for his bigamy, Luther would assume responsibility for the Wittenberg counsel (p. 211) as giving Philip private pastoral counseling. This position was maintained by Luther at the First protocol to the Eisenach Conference, July 15, 1540. On the other hand,  Luther maintained the advise was not meant for public policy, but as only the solution to a messy personal problem (See Brecht, p. 212). At these meetings Luther argued the best thing to do was deny the second marriage, for as Brecht points out "Luther foresaw grave consequences for him and the church, and in this he was proved to be correct" (Brecht 3, p. 212).

The quote in question comes from these meetings. Smith translates:

Is it not a good plan to say that the bigamy had been discussed and should not Philip say that he had indeed debated the matter, but had not yet come to a decision? All else must be kept quiet. What is it, if for the good and sake of the Christian Church, one should tell a good, strong lie? .. . And before he, Luther, would reveal the confession which Bucer had made him in the Landgrave's name, or let people talk so about a pious prince whom he always wished to serve, he would rather say that Luther had gone mad, and take the blame on himself.

In the end, Luther was to find out that Philip was not entirely honest about his extra-marital activities and said that had he knew beforehand, he would never have given Philip permission to take a second wife. Even after the entire situation was exposed, more controversy followed as supporters of Philip published treatises defending his polygamy. Luther immediately began writing against this, writing things like,  "Anyone following this fellow and his book and takes more than one wife, and thinks that this is right, the devil will prepare for him a bath in the depths of hell. Amen" (p. 214). This writing was stopped for publication for political reasons (Brecht, pp. 213-214). Brecht concludes that in the end Luther realized giving confessional advise to Philip was one of the worst mistakes he made (p. 214).  Smith concludes a bit differently:

Luther's letters tell the truth but not the whole truth. Regrettable as is his connection with the bigamy, an impartial student can hardly doubt that he acted conscientiously, not out of desire to flatter a great prince, but in order to avoid what he believed to be a greater moral evil. His statement in the Babylonian Captivity that he preferred bigamy to divorce, and his advice to Henry VIII in 1531, both exculpate him in this case. Moreover the careful study of Rockwell has shown that his opinion was shared by the great majority of his contemporaries, Catholic and Protestant alike. It is perhaps harder to justify his advice to get out of the difficulty by a lie. This, however, was certainly an inheritance from the scholastic doctrine of the sacredness of confession. A priest was bound by Church law to deny all that passed in the confessional. Moreover, many of the Church Fathers had allowed a lie to be on occasions the lesser of two evils. Nevertheless, though these considerations palliate Luther's guilt, the incident will always remain, in popular imagination as well as in historic judgment, the greatest blot on his career.

Conclusion
I think it's beyond question that Luther got himself into trouble here. Perhaps one could argue that Philip was an important political person to the well-being of the Protestant territories and this set the stage for Luther's bending of the rules.  There are though probably other instances in Luther's writings in which he would abhor bending the rules or lying, whatever the consequences.

I would side with those who believe Luther got himself into trouble over this, and deserved the consequences.  Here's though where  presuppositions come into play. I don't believe Luther was any sort of infallible pope, nor do I think he was beyond error or sin throughout his career. Since I consider Luther a basically honest person, it's not much a stretch for me to conclude he got himself in trouble here and subsequently learned his lesson. That's at least what the evidence shows.

On the other hand, web pages like Luther, Exposing the Myth presuppose that Luther was basically a dishonest person. This cover-up was simply Luther being Luther. No amount of evidence will persuade people like that otherwise. No, in their minds Luther was a lifelong advocate of polygamy and lying. The ironic thing is that web pages like Luther, Exposing the Myth don't appear to have any problem giving off the false impression that their research was primary and honest, when it really does not look to be so.