The interpretation of idolatry in Romans 1 is particularly interesting to me. Paulson observes that Luther states that prior to the Fall humans would have properly received and heard God in all things. He notes that Luther talks about "eating" God in bread when we have a regular meal. The unbelieving fool, comments Luther, eats the bread but does not realize that he eats God "in the bread."
This is not intended as pantheism or something, but rather to acknowledge that God is present to all creatures in his sustaining power. Luther's worldview was in many ways hyper-sacramental. God frees his creatures by his Word to see his goodness to them in all things. We can observe this in particular in Luther's description of Adam and Eve sacramental worship prior to the Fall in the Genesis commentary. Sin destroys our ability to hear God properly through his creatures, and therefore we cannot clearly hear God testify to his grace. Here's where idolatry comes in.
Paulson notes that Paul states that the Gentiles make "images" for themselves of the gods. There are several implications for this. First, it should be noted that the problem with idolatry is not that humans find God in physical objects. This is a problem that the Reformed have, but not Luther. God in fact wants to be found in physical objects (Incarnation, sacraments, etc.). In fact, in that an idol as an image of a God who is not present, it is a sign that the person who makes the idols does not acknowledge God's already present reality to his creatures.
Instead, the problem with the idol is that is a image. As an image, it is not a Word from God by which he testified to his hidden reality in creatures. Hence, as an image it serves either two purposes. First, it can be used to manipulate God. For the idolator, God is not sacramentally present in the image, but rather God is reduced to the image so that he can be manipulated. As a finite subject among others, God is made manageable and controllable by our works in relation to the image. Secondly, the image can become an image of a distant God. As distant, God needs a mediating image to help creatures see want he is and become like him. They now become active in trying to be like God through imitating the image. Hence, they deify themselves by their works.
This is why Israel didn't need a image of God. He was present in the Temple, so why have an image? If God is present and gracious, why make an image of a distant God? Also, note the similarity between the glory which the 70 elders in Exodus saw on Mt. Sinai and the golden calf. They need a surrogate now that Moses is gone and God is far away. Later, they are afraid when Moses is present with the real glory of God on his face, as they were when God actually spoke to them from the cloud on Sinai.
Both functions of an idol are essentially tied up with human self-justification. First, making God small and controllable is important for those who practice works righteousness. Keeping God distant is also important. Making God distant means we can move towards him with our good works and becomes like the image of him. Also, if we recognize the "wrath of God revealed from heaven above" through the mediums of creation, this will be unbearable to us. It will destroy us and all our self-justification projects. Conversely, the presence of God as gracious through the fruits of the garden made it impossible for Adam and Eve to try control God. God who is present and gracious is equally unbearable for those who wish to engage in self-justification. The God present "pro me" can't be bought off or controlled because he already unilaterally redeems and blesses.
Think also of the rejection of Jesus. Again, Jesus testified with his Word that he was God present and gracious. Hearing is essentially passive. Jesus doesn't seem like God (weakness and bad company- i.e. he is not an image to be imitated) so we must trust his Word that he is who he says he is. His Word makes many angry becomes it takes away their power to control with good works. By killing God himself, they reveal their idolatry.
Bottom line: You need to trust in a Word that discloses a presence (faith). You can only imitate an image (works).