Some years ago I published an article on Lutheran views of art as displayed in sanctuaries. My research confirmed the conservative trend in 16th century Lutheranism to retain existing art from the medieval churches where they worshiped. What they tended to remove was side altars to focus the congregation on the main altar. Art that could be interpreted in keeping with the Reformation confession was retained rather than removed or destroyed.
If Otto's chapel was destroyed, I find myself wondering whether it may have taken place under the leadership of Karlstadt, or someone like him, while Luther was away at the Wartburg. Karlstadt was an iconoclast whereas Luther clearly was not and condemned Karlstadt's extremism. As I recall when Luther returned from the Wartburg to discover what Karlstadt had done, Luther reverted to Latin for the mass, communion in one kind, and had his hair freshly tonsured to reinforce the continuity between the Reformation and the medieval Church. Over time he taught the people and then made changes but never became an iconoclast.