This is what in the Lutheran Confessions we call the Third Use of the Law, this use of the Law is to provide the sort of life we ought to lead as baptized, regenerate people of faith.
The error comes by thinking that the Third Use ignores the Second Use, which is what St. Paul explains in Romans 7, that the Law which is good brings death because of sin. The Second Use of the Law is the use of the Law which condemns sin, and is like a mirror showing ourselves to be sinners, in need of grace, to bring us to our knees in repentance.
The Third Use is for the active righteousness of the Coram Mundo, us before the world, the new obedience we have in Christ, that we live in the good works of Christ for which we were made, for the good of our neighbor. This is wholly distinct, and never to be confused with the passive righteousness of the Coram Deo, us before God. For before God the only righteousness is the alien righteousness of Jesus Christ, freely imputed to us by grace alone, through faith.
"Neither do I condemn you" is the saving word of Jesus Christ to all sinners by the Gospel.
"Go and sin no more" is the Law which we ought to abide by as reconciled sinners, which we will fail to uphold, but nevertheless are commanded to keep and live.
For the Law says, "Do this" and it is never done. That is why the Law cannot reconcile us to God, the Law cannot make us righteous before God, the Law cannot justify or save us. The active righteousness of the Law is impotent to redeem, heal, justify, and reconcile sinners to God. Only the passive righteousness, the righteousness which is apart from the Law, the righteousness of faith--which is Christ's own righteousness given to us--which makes us right with God.
Both Law and Gospel are to be preached, but preached properly, with right and proper distinction. This Dichotomy of Law and Gospel is an absolutely necessary dialectic by which to read and understand the Scriptures, and to properly communicate the truth of the Christian religion. For to confuse one for the other, or to deny the one or the other, is to preach false doctrine and ultimately to preach that which shipwrecks the faith.
So know the difference, and preach accordingly.
If you say "Go and sin no more" as though this were Gospel, or as though by this command there is peace or life with God, then you preach condemnation, indeed it is to preach damnation. Rather, preach the Gospel, "Neither do I condemn you" and the Law, "go and sin no more", and when we falter, fail, and fall on our face having inevitably fallen short of the perfect Law of God as sinners, we repent knowing that we have an Advocate, Jesus Christ our Lord, and that His Gospel is life and salvation. Therefore repent, pray hard, and trust in Him alone. We have the sure and certain promise, "If we confess our sins, He will forgive us our sins." Therefore, freely confess that you are a sinner, that though you ought to "go and sin no more" you do not do as you are told; even still, as Christ our God has commanded concerning the Samaritan, "Go and do likewise."
-CryptoLutheran