Going by history, we can say that they are disgruntled by the granting of indulgences for monetary 'donations' to the Church. The rich can do as they please and go to heaven for a few florins, while the poor are doomed to hell because they cannot pay. The idea that the Pope is a HRE puppet only reinforces this, as the Reich's Electors are rich and powerful and are perceived to be bribing their way to heaven. Having the Pope under their sway is a way of assuring their salvation, no matter how heinous their sins.

As for the Papal Bull counter-argument, well, no one said that the conspiracy theory the mobs believe is actually true. Have a few charismatic rabble-rousers incite the mob with rhetoric and let them run wild. No one said muck-shoveling peasants were intelligent... Besides, this isn't the real Reformation. It is eventually completely suppressed and there is no split in the Church, so Lex Luther's arguments don't have to be too convincing. Hell, we can even make him an agent of that Pagan group, if we want.