Don’t misunderstand. Luther is perfectly clear elsewhere that he does not deny that Roman Christians are still Christians; the question is whether the Roman Pontiff is the voice of the Church and whether the curia and bishops submissive to him are the voice of the Church.(source)
I have to wonder whether he and I read the same Smalcald Articles. In my copy we find this comment:
O Lord Jesus Christ, do Thou Thyself convoke a Council, and deliver Thy servants by Thy glorious advent! The Pope and his adherents are done for; they will have none of Thee. Do Thou, then, help us, who are poor and needy, who sigh to Thee, and beseech Thee earnestly, according to the grace which Thou hast given us, through Thy Holy Ghost, who liveth and reigneth with Thee and the Father, blessed forever. Amen.- Smalcald Articles, Preface, 15 (emphasis mine)
Of this article nothing can be yielded or surrendered [nor can anything be granted or permitted contrary to the same], even though heaven and earth, and whatever will not abide, should sink to ruin. For there is none other name under heaven, given among men whereby we must be saved, says Peter, Acts 4:12. And with His stripes we are healed, [Is. 53:5]. And upon this article all things depend which we teach and practice in opposition to the Pope, the devil, and the [whole] world. Therefore, we must be sure concerning this doctrine, and not doubt; for otherwise all is lost, and the Pope and devil and all things gain the victory and suit over us.- Smalcald Articles, Part 2, Article 1, 5
For all his bulls and books are extant, in which he roars like a lion (as the angel in Rev. 12 depicts him, [crying out] that no Christian can be saved unless he obeys him and is subject to him in all things that he wishes, that he says, and that he does. All of which amounts to nothing less than saying: Although you believe in Christ, and have in Him [alone] everything that is necessary to salvation, yet it is nothing and all in vain unless you regard [have and worship] me as your god, and be subject and obedient to me. And yet it is manifest that the holy Church has been without the Pope for at least more than five hundred years, and that even to the present day the churches of the Greeks and of many other languages neither have been nor are yet under the Pope. Besides, as often remarked, it is a human figment which is not commanded, and is unnecessary and useless; for the holy Christian [or catholic] Church can exist very well without such a head, and it would certainly have remained better [purer, and its career would have been more prosperous] if such a head had not been raised up by the devil.- Smalcald Articles, Part 2, Article 4, 4-5
This teaching shows forcefully that the Pope is the very Antichrist, who has exalted himself above, and opposed himself against Christ because he will not permit Christians to be saved without his power, which, nevertheless, is nothing, and is neither ordained nor commanded by God. This is, properly speaking to exalt himself above all that is called God as Paul says, 2 Thess. 2:4. Even the Turks or the Tartars, great enemies of Christians as they are, do not do this, but they allow whoever wishes to believe in Christ, and take bodily tribute and obedience from Christians.- Smalcald Articles, Part 2, Article 4, 10-14
The Pope, however, prohibits this faith, saying that to be saved a person must obey him. This we are unwilling to do, even though on this account we must die in God's name. This all proceeds from the fact that the Pope has wished to be called the supreme head of the Christian Church by divine right. Accordingly he had to make himself equal and superior to Christ, and had to cause himself to be proclaimed the head and then the lord of the Church, and finally of the whole world, and simply God on earth, until he has dared to issue commands even to the angels in heaven. And when we distinguish the Pope's teaching from, or measure and hold it against, Holy Scripture, it is found [it appears plainly] that the Pope's teaching, where it is best, has been taken from the imperial and heathen law, and treats of political matters and decisions or rights, as the Decretals show; furthermore, it teaches of ceremonies concerning churches, garments, food, persons and [similar] puerile, theatrical and comical things without measure, but in all these things nothing at all of Christ, faith, and the commandments of God. Lastly, it is nothing else than the devil himself, because above and against God he urges [and disseminates] his [papal] falsehoods concerning masses, purgatory, the monastic life, one's own works and [fictitious] divine worship (for this is the very Papacy [upon each of which the Papacy is altogether founded and is standing]), and condemns, murders and tortures all Christians who do not exalt and honor these abominations [of the Pope] above all things. Therefore, just as little as we can worship the devil himself as Lord and God, we can endure his apostle, the Pope, or Antichrist, in his rule as head or lord. For to lie and to kill, and to destroy body and soul eternally, that is wherein his papal government really consists, as I have very clearly shown in many books.
(source for Smalcald Articles)
Obviously, Luther didn't refer (in the Smalcald Articles) to Romanism as paganism, but he certainly doesn't seem to have treated the adherents of the papacy as though they were justified in the sight of God. In fact, in the first quotation above he seems to indicate that by adhering to the pope ("the very Antichrist" in one of the later quotations) they have failed to adhere to Christ, and consequently are "done for" and about to face the wrath of God at the glorious advent (second coming) of Christ. I'm not sure Rev. McCain's picture is totally accurate when he describes the "first evangelicals'" (his characterization based on the usage of the term) response to Rome's claims:
As we've seen above, their claims were considerably more well-defined than simply stating that Rome is not the church.
What is the Church? Is Rome the Church? Ought we to listen to the Pope when he speaks as Bishop of Rome because there is some unique promise attached to his office? Smalcald Articles III, Article XII is joyously clear:
“We do not agree with them that they are the Church.” (Accent, should be on the Church) “They are not the Church. Nor will we listen to those things that, under the name of the Church, they command or forbid.”