I have begun reading a marvelous book by Daphne Hampson Christian Contradictions: The Structures of Lutheran and Catholic Thought, Cambridge University Press, 2001). It lays out clearly the differences between Catholic and Lutheran approaches to theology. Here is a little "taste" as I have only begun to devour this tome!
The best quote first (emphasis added):
Here however we immediately progress to a disparity at a more fundamental level, for as we have already seen it would appear almost impossible for Catholicism to accept the basic Lutheran proposition, that God accepts sinners.
It is fundamental to the Catholic structure of thought, embedded in the philosophical context of the ancient world within which Catholicism grew, that our relationship to God is founded on our likeness to God. Thus it is in so far as we are not sinners that we are in relation to God, for sin implies non-being. Catholics are thinking 'substantially' about the goodness (or not) of human beings, which implies being (or lack of it). Indeed, quite apart from any Aristotelian' substructure to Catholicism, the whole sacramental system of the church suggests that we must first be right in ourselves (in a state of grace) before we can be in relation to God.
By contrast, Lutherans are thinking of the human relationally , understanding human ‘change’ in terms of the difference which acceptance makes to how one views oneself and how one behaves towards others.
Stuff before the quote above :
Catholics seem to think that they can separate 'justification by faith , from 'extrinsic righteousness', saying that they accept the former while they must deny the latter. However by 'justification by faith , they understand what they conceive to be the Lutheran way of saying that we are justified by God (that is to say the Lutheran equivalent to a Catholic saying that all grace comes from God) …
But in speaking of 'justification by faith', Lutherans are not referring to virtue infused by God which thenceforth becomes an intrinsic property of the human. They are referring to that act whereby I trust in another and not in myself. In other words they are proclaiming the Christian to live by an 'extrinsic' righteousness. The Christian is accepted on account of Christ's righteousness and not on account of anything about the way that he or she is. In this situation to say that Catholicism too is not Pelagian, that Catholics proclaim all grace to come from God, is simply beside the point. What is pivotal to Luther is to have escaped the kind of introspective concern which an interest in receiving grace implies.
The misunderstanding of the phrase simul iustus et peccator is part and parcel of the same failure to understand the structure of Lutheran thought. What Lutherans intend by this catch phrase is that we have a double sense of self: on the one hand we live from the future, from the promise, our sense of ourselves bound up with God; but while we do this we know ourselves to be unworthy. Catholics will commonly apply both terms 'iustus' and 'peccator' to the interior state of the human being -and then proclaim this to be a paradox or a contradiction in terms, frequently saying that Lutherans could not possibly mean this.
Now it is true that the phrase does in a sense represent a paradox for Lutherans. For it expresses the paradox which they believe lies at the heart of the Christian gospel -namely that God accepts sinners … The phrase captures two ways of speaking about the human, accepted by God, while a sinner in oneself.