First, I'll concede a point of Boaz's. I'm very biased against contemporary worship simply because it's in bad taste. It's irritating, loud, and the music sounds bad to me. When I was a teenager I never listened to rock. My first CD was Wagner. I actually watch the entire Ring cycle on public television with my father when I was in the 4th grade. I did get into rock music when I was in college, but less popular stuff. So you've got me. Part of the reason I don't like contemporary worship is that aesthetically it's kind of a turn off.
After conceding that point, I want to expand on some things I said earlier and make a larger case. Just because I admit that I'm naturally biased against it doesn't make it by default theologically correct. This is a logical fallacy known as "poisoning the well" (actually this fallacy is basis of most modern biblical scholarship, but that's another post- so I digress.)
I would put forth the following reasons why contemporary worship is inconsistent with Scripture and Confessions:
1. It promotes a false view of evangelism: Let's start by asking the question, why does anyone adopt contemporary worship? I would bet you 9 times out of 10 it's not because the 80 year German grandmas in your congregation can't bear to go to church one more Sunday without hearing an Boston or Eagles concert instead of the liturgy. It's always for the sake of evangelism (at least in the LCMS). The argument goes that the young folks (and I remember this argument, because I was one of them not very long ago) can't relate to the liturgy and in order to keep them we've got to relate to them through rock music. Usually this is accompanied with some sort of threat by the part of someone in the congregation that if we don't adopt this, then people will end up in Hell.
The first problem is that it actually never works. Often times congregations will literally lose people when they do this or their decline will persist. My parents' old church in Des Moines was an example. They made the 11:00 service the rock concert service in order to draw in the young families from the school or to keep them. When they started they had 120 kids going to the school. After 5 years of contemporary worship, they had 80.
In a sense, just on the basis of marketing, Lutheran shouldn't try to adopt these practices because they don't work for us. The Baptists will always do them better than us and if we send the message that we're no different than the Baptists, then why choose us over them? Secondly, you basically end up alienating people who are already loyal Lutherans- like my parents. Although faith is not a choice, where I go to church is a decision "below me" as Luther would put it.
The second point is that all this ultimately assumes an anthropology that we don't possess. Namely, that people are rational and autonomous beings who can "make their decision for Jesus." This was the whole premise of Revivalism, which comes out of Pietism. Since the Spirit doesn't effectively work faith through the mere proclamation of Word and sacrament, then you've got to somehow supplement it with a dog-and-pony show. Ultimately, it's about marketing. How can we influence people to make this decision? That's one of the reasons why all the televangelists end up getting in trouble. If the premise is that you have to manipulate people to get them to do the right thing (believe in Jesus), then you'll be tempted to manipulate them to do other things as well once you have that power over them.
Ultimately then, the move to contemporary worship is based on a desire for evangelism that contradicts the Confessional Lutheran concept of grace and free will. God predestines the elect and causes them to have faith through the Word and the sacraments. There is a set number of the elect. If we adopt contemporary worship, there will be the same number of people in heaven as there would be if we didn't. Hence, we should simply proclaim the Word and not worry about manipulating people into "making their decision for Jesus"
2. It promotes a false anthropology: Let's expand on the point I made earlier about the false concept of human powers after the Fall. Contemporary worship also promotes an idea that is common in the Mainline right now as well. The idea that practice makes perfect. In other words, by doing exciting, emotional worship, it will form us into a Christian community and make us better Christians. This is one of the reasons why Pastors in these congregations are thought of as "leaders" and not as "Ministers of the Word," that is, pastoral healers. "Leaders" direct us somewhere and therefore get us to do something. "Minister of the Word" gives us the goods of Christ's benefits which we receive passively.
In this contemporary scheme, the Pastor brings in the new worship program. It forms peoples emotions to be "on fire for God." Then he gives a kind of moralizing message so that they'll "effect real change in their community" or something. In other words, specific practices create faith and promote morals. By doing them, we become something.
Part of this is a bad doctrine of creation. The idea here is that we create ourselves by our actions. This makes us God and is in fact what the serpent promised in the garden of Eden- "eat this and become God." Also, bear in mind, this is precisely the idea that Luther rejected in Aristotle and the via moderna when he started the Reformation. We are God's objects through proclamation. He speaks us into existence as justified sinners via Word and Sacrament. We do not create ourselves by our actions.
3. It moves in the wrong direction!: Contemporary worship is praise worship. Praise worship moves the wrong direction. It moves from us to God. We read the silly and repetitive verses off the projector. We ascend by our praises to God. We move to God, God does not move to us.
The structure of liturgical worship is to opposite. It moves from God to us and back again. In Genesis 1, God speaks forth creation and therefore creation glorifies God in return. God's initiative prompts the return of praise. In liturgical worship, the Pastor speaks the words of grace and therefore frees the congregation to praise God. This back and forth is part of the structure of creation and new creation, as Revelation 4-5 suggest.
4. Non-liturgical worship is a break with the biblical and ecumenical heritage of the Lutheran Church: The Old Testament Church had liturgical worship. All churches had liturgical worship until the 17th century the "Holy Fairs" began to emerge in Northern Ireland and Scotland. These evolved into the American camp meetings and the modern church-growth style worship settings of modern Evangelicals.
The Formula of Concord states that we should not abandon any of the traditions of the Church unless they contradict the Scriptures. This is partially because they help maintain continuity with the Church-catholic (which is important if we don't want to be a sect), but also because they teach the faith even when we have faithless teachers.
A good example of this is during the Arian controversy. In spite of the fact that Arius and some other Bishops were teaching the faith incorrectly, a great many of the laity were still saved by the fact that the liturgy contained true expositions of the faith. Liturgy saves us from unskilled or heretical pastors and teachers. It promotes and preserves the faith.
Free-form worship can't do this because it is subject to the whim of any given church-leader that comes along. Instead of teaching the faith, it seeks to promote a sub-cognitive faith based on meaningless formulas that are repeated over and over again. It seeks to promote emotions that will manipulate people into doing things, not create real faith, which always integrates the total person, intellect and emotions. This is one of the reasons why when they do surveys in churches that have non-liturgical worship and church-growth techniques they without fail can't even correctly explain the Apostles Creed.
Boaz, I hope this answers your question. I invite comments of concern and clarification.
UPDATE: Boaz, I forgot about your question regarding why if contemporary worship has evangelical and Arminian implications, why liturgical worship wouldn't have Roman Catholic ones. Historically, Lutherans have purified the liturgy from Roman aspects. Namely, Luther got rid of the Eucharistic prayer and Flacius fought the Augsburg Interim which attempted to impose it again. The Eucharistic prayer assumes that humans take the initiative in coming to God in holy Communion and not the other way around. Hence the present ELCA adoption of it again is not acceptable, as historians like Oliver K. Olson have pointed out.