Sounds like what he's saying is that every sermon should be for the sinners listening--who need the law to confront them, and the gospel to comfort them, and hope for living unto God through the indwelling Spirit.
As opposed to providing enthusiasm for the saints listening, and promising damnation for the sinners out there--on the other side of the RR tracks, up in D.C., in the church-of-heathens down the street, etc.
I'm not a pastor, but I've read Chappell's book and am going to weigh in here...
I say Chappell's method is a good one. I've learned some helpful things from it. And it isn't just for preachers. I often start preparing Sunday School lessons or written devotionals by asking myself "what's the fallen condition that God is targeting for redemption in this passage." Doing so helps keep the focus on Christ and God's work of redemption.
But it's not the only good framework nor one every sermon must use (and I don't think Chappell would say it is, either). So we need to be careful not to try to force others, in particular, into using that framework, even if we like it.
As for the matter of the sermon being for sinners or for the saints... I think Chappell would say that both believers and unbelievers need to regularly hear sermons about the many things God has done in Christ to redeem his people and his world—hence the emphasis on a "fallen condition" we face and how Christ brings redemption to that situation. Without such constant encouragement and grounding in Christ, sermons that merely tell you to "be good" tend to bring death rather than life. In this I agree with him.