"We find Luther owning that he would never have begun to preach, if he had foreseen these unhappy results, and that he scarcely knows whether he ought to continue preaching. His words are "See how foolishly the people everywhere behave towards the Gospel, so that I scarcely know whether I ought to continue preaching or not" [Walch. XI. 3052].
This quote pops up every once in a while. It's typically used by Rome's defenders as proof of the failure of the Reformation (or something like Luther's regrets or concession to the failure of the Reformation, etc. example #1, example #2). O'Connor uses it to describe the "Results of Luther's Teaching," specifically, the "Moral Results" that there was a "Lower State of General Morality."
Luther's Own Statements Concerning His Teaching and Its Results is an old small anthology of Luther quotes peppered with vilifying commentary from O’Connor. In an early edition of this work, the author was so sure of his effort he originally titled the book, "The Only Reliable Evidence Concerning Martin Luther." The author claims to have compiled the quotes from the original sources: “Nearly two-thirds of the matter contained in this pamphlet is taken from the original editions of Luther’s own Works, as published in Wittenberg, under the very eye of the Reformer of Germany himself”(p. 3) He says “I have taken special care not to quote anything, that would have a different meaning, if read with the full context”(p.5).
The footnote "Walch. XI" refers to the eleventh volume in a set of Luther's works published between 1740-1753 by Johann Georg Walch (Kirchen-Postille Evangelien-Predigten), page 3052. This volume from Walch contains Luther's Church Postil. These Postil sermons have a tedious and complicated legacy (see the introduction to LW 75). The text in question O'Connor is citing appears to be:
The text is from Luther's sermons on The Feast of Saint John the Baptizer, specifically The Benedictus, or Prophecy of Zechariah (Luke 1:57-80). Even though a four volume set from LW contains the Church Postil, the English translation of this particular sermon is found in Joel Basely's translation of Luther's Kirchenpostille: The Festival Sermons of Martin Luther (Michigan: Mark V Publications, 2005). The context for the quote can be found in the second part of the book, page 81.
This sermon does not date from late in Luther's career, but rather the early 1520's. Here's a copy from 1525. I mention this because Rome's polemicists think Luther gradually became disheartened by the ineffectiveness of his Gospel preaching. This sermon should demonstrate to them that their paradigm is flawed based on the very quote they extracted from this writing. If they want to use the quote from this sermon, they have to at least admit that early in Luther's career, he felt the same way he did later in his career.
I don't think Luther was being despondent or bemoaning the impact of his preaching. Luther says he was tempted to stop preaching the Gospel because it comes across to the world as foolish and people think because of the pure imputation of Christ's righteousness, no one need live a moral life. But as he continues, the masses also misinterpreted Christ's preaching, so he was in good company. He goes on to say: "The Gospel remains a preaching to the congregation and who it grasps it grasps." Where Rome's defenders see a despondent Luther, the context actually breathes of preaching the perfect righteousness of Christ and how that righteousness will both confound the world and will be a comfort to those plagued by their sins. Such a person is to live an outwardly honorable life, always though with the realization that the only honorable life accepted by God is the perfectly honorable life of Christ.