Why did and do Lutherans fall for the physical presence and baptismal

Because Luther so stressed the literalness of the words of institution (he is known to have autistically scratched "hoc est corpus meum" into the table during a colloquy with the Reformed) that he could admit nothing other than a mechanistic, local AND illocal presence (this would complicate their christology, creating a markedly different doctrine of the Person of Christ that the Reformed thought tended towards the Eutychian heresy).

Same goes for baptism. Luther couldn't see anything other than a mechanistic operation in means of grace, so that (though they say they deny "ex opere operato," they have a very difficult time escaping this language in effect) the rite must always accomplish the same thing in every recipient. This also complicated their application of justification. When spoken about in isolation, their doctrine of justification is identical to the Reformed. But they eventually came to insist that regeneration, and therefore faith and justification is then only received in Baptism, whereas the Reformed insisted that this is possible, but God uses His ordained means the way and to the extent that He wills, and it is possible to have been justified before baptism, or even in the case of unbelievers who receive the outward rite, to fail to be regenerated at all.