Luther was apparently fine with statuary (crucifixes, saints) and other art. I don't know specifically if he ever actually used a phrase like "a Bible for the unlettered," but this seems to be a typical modern Lutheran interpretation of him. Their confession I believe speaks to such allowances. They viewed themselves as the most conservative of the magisterial (as opposed to radical) reformers, which practically showed itself in the preservation of many of those items and practices the Reformed found unacceptable.
But to be perfectly clear, Lutherans as a rule do not treat saints or their statues/icons in Romanist ways. However, some will use a crucifix as a means of devotion. And I have heard a Lutheran minister commend some act of veneration toward the (corporeal) body-and-blood presence of Christ; as he put it, it is a sensible (from their standpoint) position to take.
Prof. Andreas Karlstadt, Luther's senior at Wittenberg, ended up following Luther into the Reformation. But while Luther was in hiding after the Diet of Worms, Karlstadt radicalized the pace of reform; and the results got out of hand. Luther had been very worried about potentially losing the positive effects of Reformation to either conservative backlash or unrestrained license, or a combination. Luther actually returned from his exile in no small part to put an end to the iconoclastic excesses of Karlstadt.
Karlstadt was not an effective leader, and clearly he did not anticipate the wildness he helped unleash. Luther's resistance broke their partnership. Karlstadt found some sympathy amongst the Radicals (like Thomas Muntzer), but they were too radical for him. He went unto the Swiss, but he was not trusted among the leaders of that Reformation; and apparently he was not content to settle back into anything that wasn't a primary leadership position. He ended up as a man without a country.
So, the iconoclastic portion of the Lutheran reformation was squelched (for some good cause); and whatever similarities Karlstadt had to the Reformed, he was too idiosyncratic to find a home among them. But for Lutherans all iconoclasm now belonged to one group: the Radicals and the Reformed, together written off as the lunatic fringe.
You can read on Luther's own comments in a number of places:
Luther's work "How Christians Should Regard Moses" (1525) How Christians Should Regard Moses - Sermon by Martin Luther
"The sectarian spirits have misunderstood also with respect to the images; for that too pertains only to the Jews." [The iconoclasm of the radical leftists, who took Moses literally and destroyed images, windows, and other church art, aroused Luther’s indignation. Cf. his fuller treatment of this subject, also during 1525, in Against the Heavenly Prophets, LW 40: 84– 101]
"Images, bells, Eucharistic vestments, church ornaments, altar lights, and the like I regard as things indifferent. Anyone who wishes may omit them. Images or pictures taken from the Scriptures and from good histories, however, I consider very useful yet indifferent and optional. I have no sympathy with the iconoclasts." (Lull, Timothy F. (2012-03-01). Martin Luther's Basic Theological Writings (p. 32). Fortress Press. Kindle Edition.)
The Third Sermon, March 11, 1522, Tuesday after Invocavit (Lull, Timothy F. (2012-03-01). Martin Luther's Basic Theological Writings (p. 294). Fortress Press. Kindle Edition.)
But now we must come to the images, and concerning them also it is true that they are unnecessary, and we are free to have them or not, although it would be much better if we did not have them at all. I am not partial to them. A great controversy arose on the subject of images between the Roman emperor and the pope; the emperor held that he had the authority to banish the images, but the pope insisted that they should remain, and both were wrong. Much blood was shed, but the pope emerged as victor and the emperor lost.[ 8] What was it all about? They wished to make a “must” out of that which is free. This God cannot tolerate. Do you presume to do things differently from the way the supreme Majesty has decreed? Surely not; let it alone. You read in the law (Exod. 20[: 4]), “you shall not make yourself a graven image, or any likeness of anything that is in heaven above, or that is in the earth beneath, or that is in the water under the earth.” There you take your stand; that is your ground. Now let us see! When our adversaries say: The meaning of the first commandment is that we should worship only one God and not any image, even as it is said immediately following, “You shall not bow down to them or serve them” [Exod. 20: 5], and when they say that it is the worship of images which is forbidden and not the making of them, they are shaking our foundation and making it uncertain. And if you reply: The text says, “You shall not make any images,” then they say: It also says, “You shall not worship them.” In the face of such uncertainty who would be so bold as to destroy the images? Not I. But let us go further. They say: Did not Noah, Abraham, Jacob build altars? [Gen. 8: 20; 12: 7; 13: 4; 13: 18; 33: 20]. And who will deny that? We must admit it. Again, did not Moses erect a bronze serpent, as we read in his fourth book (Num. 22[ 21: 9])? How then can you say that Moses forbade the making of images when he himself made one? It seems to me that such a serpent is an image, too. How shall we answer that? Again, do we not read also that two birds were erected on the mercy seat [Exod. 37: 7], the very place where God willed that he should be worshipped? Here we must admit that we may have images and make images, but we must not worship them, and if they are worshipped, they should be put away and destroyed, just as King Hezekiah broke in pieces the bronze serpent erected by Moses [2 Kings 18: 4]. And who will be so bold as to say, when he is challenged to give an answer: They worship the images. They will say: Are you the man who dares to accuse us of worshipping them? Do not believe that they will acknowledge it. To be sure, it is true, but we cannot make them admit it. Just look how they acted when I condemned works without faith. They said: Do you believe that we have no faith, or that our works are performed without faith? Then I cannot press them any further, but must put my flute back in my pocket; for if they gain a hair’s breadth, they make a hundred miles out of it. Therefore it should have been preached that images were nothing and that no service is done to God by erecting them; then they would have fallen of themselves. That is what I did; that is what Paul did in Athens, when he went into their churches and saw all their idols. He did not strike at any of them, but stood in the market place and said, “You men of Athens, you are all idolatrous” [Acts 17: 16, 22]. He preached against their idols, but he overthrew none by force. And you rush, create an uproar, break down altars, and overthrow images! Do you really believe you can abolish the altars in this way? No, you will only set them up more firmly. Even if you overthrew the images in this place, do you think you have overthrown those in Nürnberg and the rest of the world? Not at all. St. Paul, as we read in the book of Acts [28: 11], sat in a ship on whose prow were painted or carved the Twin Brothers [i.e., Castor and Pollux]. He went on board and did not bother about them at all, neither did he break them off. Why must Luke describe the Twins at this point? Without doubt he wanted to show that outward things could do no harm to faith, if only the heart does not cleave to them or put its trust in them. This is what we must preach and teach, and let the Word alone do the work, as I said before. The Word must first capture the hearts of men and enlighten them; we will not be the ones who will do it. Therefore the apostles magnified their ministry, ministerium [Rom. 11: 13], and not its effect, executio. Let this be enough for today.
Lull, Timothy F. (2012-03-01). Martin Luther's Basic Theological Writings (pp. 296-297). Fortress Press. Kindle Edition.