Luther can never be rehabilitated. It is out of the question, impossible. Reunion will come precisely at this, when they realize that Luther was just one among countless figures in history, Arius, Nestorius etc who made impious pretenses against the doctrine of the Church of Christ. None of them can be "rehabilated" either.
I don't scrutinize Papal statements in detail, but from my understanding the Pope's intention was only to stress that the question "How do I receive the grace of God?" which was Luther's "driving force" (which he, of course, answered foolishly and heretically) demands careful reflection from us too, and evermore in our secularized day and age.