I agree there is a problem with the word "literal." I think it is misleading to speak of a "literal" interpretation of the Bible. At least in an American context, "literal" to most people means either dispensationalism or Fundamentalist legalism (or typically, it means both at the same time). Lutheranism takes the Bible more seriously than so-called literalists who often read esoteric theories and timelines into the Bible. This is also different from the liberals who interpret the Bible (in so far as they regard the Bible at all) according to the latest fads.
What has done incredible damage to Lutheran Biblical studies and interpretation is a movement sometimes called “Gospel reductionism”; meaning that the “Gospel” is paramount in all of scripture and any passage which does not lead to the “Gospel” is to set aside or regarded as less authorotative.
Notice that I placed Gospel within quotation marks. The problem is that the Gospel of God’s grace freely given in Jesus Christ as the remedy for sin has been displaced by a pseudo-gospel or, more properly, an anti-gospel of “radical inclusivism”.
Many Confessional Lutherans believe that Gospel reductionism is near the top of the slippery slope leading to the present crisis.