Luther: It is better to Think of Church in the Ale-House Than to Think of the Ale-House in Church

Here's one from the CARM boards:

As a beer loving German Lutheran, my favorite quotation by Martin Luther is the following: "It is better to think about church in the ale-house than to think about the ale-house in church."

The quote also appears in these forms:

"It is better to think of church in the ale-house than to think of the ale-house in church."

"Tis' better to think of church in the alehouse than to think of the alehouse in church."

"Better to think of church in the ale-house than to think of the ale-house in church."

A quick Internet search reveals heavy usage of this quote, even having its own jpg's and wallpaper:

I particularly enjoyed this invented commentary on the quote:

Luther said, “It is better to think of church in the ale-house than to think of the ale-house in church.” What I take from this quote is that God longs to be included in every part of our existence – not just the hour we spend on Sunday mornings in Church. Beer and hymns is a great opportunity to invite God into the routine activities of something as simple as eating and drinking.

Documentation
I found no documentation. All the online usages I came across appear to be recent, post-2000.

Conclusion
The quote appears to be spurious. Here are two versions of a quote from a sermon from Luther on 1 Tim. 1:5-7 that were the closest thing I could find to the quote in question:

If you can sit day and night in a tavern or somewhere else with good companions, gossiping, talking, singing, and bawling, and not grow tired or feel that it is work, then you can also sit in church for an hour and listen in the services of God and his will. What would you do if he commanded you to carry stones or to go on a pilgrimage or imposed some other heavy work upon you, as was imposed upon us formerly, when we willingly performed everything we were told to do and into the bargain were fleeced of money, goods, and body with silly lies and frauds? (LW 51:264)

This service which God hath enjoined upon us, is not laborious, but easy. It requireth nothing but our time and attention: and if it can afford a person pleasure to sit during whole days and evenings at an ale-house or tavern, engaged in revelry and mirth with lewd and wicked companions, it should give him little pain to sit, during a few hours, in the house of God ; for he would not only spend his time more profitably to himself, but would also render an acceptable service to his Maker.  If this duty seem burthensome, how should we endure to go from temple to temple, and from altar to altar, to attend to rites and ceremonies, as we did among the papists? Or how should we sustain those laborious services, such as carrying stones from quarries, and going armed on pilgrimages, which those blind bigots imposed upon us! These services were performed willingly, when we were deluded by false doctrine (source).

There are a number of spurious quotes attributed to Luther and alcohol. On  the other hand, there are a great many legitimate comments from Luther about, alcohol, drinking, and drunkenness. Consider particularly, Luther's 1539 Sermon on Soberness and Moderation (LW 51:289-299). Consider one excerpt:

Eating and drinking are not forbidden, but rather all food is a matter of freedom, even a modest drink for one’s pleasure. If you do not wish to conduct yourself this way, if you are going to go beyond this and be a born pig and guzzle beer and wine, then, if this cannot be stopped by the rulers, you must know that you cannot be saved. For God will not admit such piggish drinkers into the kingdom of heaven [cf. Gal. 5:19–21] (LW 51:293).

The historical record nowhere documents Luther ever being drunk. It does provide evidence that he did drink alcohol and that he enjoyed drinking. One needs only survey the massive output of work that Luther physically did (preaching, teaching, etc.) and produced to settle the matter that Luther did not have a drinking problem. Luther preached and wrote against drunkenness throughout his entire life with vigor and force. As biographer Heinrich Boehmer notes, “Luther attacked the craving for drink with word and pen more vigorously than any German of his time. He told even princes his opinion of it, in private and public, blamed the elector himself publicly for this vice, and read the elector’s courtiers an astonishingly drastic lecture” [Heinrich Boehmer,Luther and the Reformation in the Light of Modern Research (London: G. Bell and Sons LTD, 1930), 198]. 

Addendum #1: A Few Comments from Luther on Alcohol, The Ale-House, and Church

Here a few Luther comments that I came across while putting this entry together:

There is a proverb invented by the priests, and it seems to me that the devil himself was making fun of them with it. When our Lord God was making a priest, the devil was watching and wanted to imitate Him. But he made the tonsure too wide, and it turned out to be a monk. Therefore the monks are the devil’s creatures. Of course, that is said in fun, as a joke, but it is really true. When the devil sees God commanding obedience and mutual love and creating a fine, spiritual people of His own, he cannot let it go at that. He just has to build his chapel or tavern next to the church and then to start teaching his monkery, poverty, gray coats, and the like. Thus the monks are always the devil’s priests. They preach nothing but the doctrine of demons, as Paul calls it (1 Tim. 4:1), which they have taken up on the basis of their own supposition and which, in their superior wisdom, they claim to be an improvement on the work of God. (LW 21:263)

In the extreme wickedness of the world, the godly person is as one alone, unexampled as it were, a rose among thorns; therefore he must endure every form of misfortune, of censure, shame and wrong. The apostle's thought is: He who would live soberly, righteously and godly must expect to meet all manner of enmity and must take up the cross. He must not allow himself to be misled, even though he has to live alone, like Lot in Sodom and Abraham in Canaan, among none but the gluttonous, the drunken, the incontinent, unrighteous, false and ungodly. His environment is world and must remain world. He has to resist and overcome the enticements of earth, censuring worldly desires. To live right in this present world, mark you, is like living soberly in a saloon, chastely in a brothel, godly in a gaiety hall, uprightly in a den of murderers. The character of the world is such as to render our earthly life difficult and distressing, until we longingly cry out for death and the day of judgment, and await them with ardent desire; as the next clause in the text indicates. Life being subject to so many evils, its only hope is in being led by grace. Human nature and reason are at a loss to direct it. “Looking for the blessed hope.” [source]

Many Do Not Appreciate the Bread of Life
"Is there any bran?" Our Epicureans are also like that. We place the finest fare of our salvation before them in church, the forgiveness of sins and the grace of God. Then they turn up the nose and grub (scharren) for dollars, saying: Is there any bran? Well, garbage is to be put into a sow. Thus it happened to Ambrosius. He was once told by his parishioners, after they had been admonished to hear the Word and the sermon: The truth is, dear pastor, that if you were to tap a keg of beer in church and call us to enjoy it, we would be glad to come. (W-T 3, No. 3663) [English translation: Ewald Plass, What Luther Says, Vol. 1, p. 303].