“The difficulty in the way of giving an answer is a profound one. Ultimately it is due to the fact that there is no appropriate category in Catholic thought for the phenomenon of Protestantism today (one could say the same of the relationship to the separated churches of the East).
It seems to me that, here, he says "Protestantism," which refers to the belief system itself and not individual Christians. By using the word "today," he distinguishes the nature of the old belief system from the heresy as it exists today.
He then says that this old category no longer applies:
It is obvious that the old category of ‘heresy’ is no longer of any value.
He continues by speaking of heresy on the personal level:
Heresy, for Scripture and the early Church, includes the idea of a personal decision against the unity of the Church, and heresy’s characteristic is pertinacia, the obstinacy of him who persists in his own private way. This, however, cannot be regarded as an appropriate description of the spiritual situation of the Protestant Christian.
Then he goes back to talking about the belief system's positive effect on the individual:
In the course of a now centuries-old history, Protestantism has made an important contribution to the realization of Christian faith, fulfilling a positive function in the development of the Christian message and, above all, often giving rise to a sincere and profound faith in the individual non-Catholic Christian, whose separation from the Catholic affirmation has nothing to do with the pertinacia characteristic of heresy.
Then he goes back to talking about the belief system:
Perhaps we may here invert a saying of St. Augustine’s: that an old schism becomes a heresy. The very passage of time alters the character of a division, so that an old division is something essentially different from a new one. Something that was once rightly condemned as heresy cannot later simply become true, but it can gradually develop its own positive ecclesial nature, with which the individual is presented as his church and in which he lives as a believer, not as a heretic.
The Church has acknowledged this in children who have not reached the age of reason or who have not obstinately doubted or denied any dogma of the Catholic Church (e.g.
extra Ecclesiam nulla salus). But the nature of that very dogma makes it very difficult for anyone who is aware of it to not deny it while remaining outside the Church. Of course, with the new version of the ecclesiastical unity, Protestants are indeed fundamental members of the "Church of Christ," just not its concrete historical manifestation known as the Catholic Church.
This organization of one group, however, ultimately has an effect on the whole. The conclusion is inescapable, then: Protestantism today is something different from heresy in the traditional sense, a phenomenon whose true theological place has not yet been determined.”
He then goes on to reevaluate the heresy of the belief system itself, with all of its errors, denials, and heresies, in light of the personal exoneration of individuals erring in good faith. But this isn't the first time we've seen this. Benedict XVI is doing exactly what the PCPCU taught a couple decades ago when it used its exoneration of individual Christians to reevaluate the status of the "particular Churches" themselves.
Edited to add: The above-referenced ecumenical text tries to justify itself by claiming that
Mystici Corporis Christi was talking about individual persons, but that
Lumen Gentium and the ecumenical texts that complemented it are treating of entire "Churches" and "ecclesial communities." As if this incorporation of false teachings (rather than mislead persons), which are inspirations of the devil and manifestations of rebellion, into the "One Church" wasn't heretical enough, it contradicts itself only a few paragraphs later when it turns around and applies this new teaching to individual "non-Catholic" Christians by stating that "Non-Catholic Christians are therefore not outside of the one church" (
JIC, Communiqué: Uniatism, Method of Union of the Past, and the Present Search for Full Communion, n. 15; June 1993). This directly contradicts Mystici Corporis Christi, which only a few paragraphs before was marginalized as being a completely different topic.
Dominus Iesus was supposed to clear up this mess, but instead of clarifying things, it made them even more confusing. In fact, it is even more problematic than the document upon which it attempts to expound. Based on very subtle ordering of words and quotes, it is now explicitly heretical rather than only implicitly so. If you follow the citation it provides when attempting to clarify
Lumen Gentium's controversial teaching on the Church, you see that the demonstrative pronoun just inside the quotes actually refers to something referenced from the source document (
Lumen Gentium) outside of the context of the paragraph in
Dominus Iesus. Understanding the adjective in context of the paragraph, as it is written right now, however, it is explicitly heretical by stating that not just "elements of truth and sanctification" found in these other "Churches" are responsible for saving non-Catholic Christians, but that these other "Churches" themselves, with all of their errors, heresies, and denials, are responsible for their salvation. If you don't believe me, see the ecumenical texts (namely, the PCPCU) that complements
Dominus Iesus. These texts state that other "Churches" (i.e. Orthodox and Catholic)
together make up the "Church of God".
At first glance, the text of
Dominus Iesus appears to be just a result of carelessness and sloppiness. But the supplementary ecumenical texts referred to by BXVI actually state explicitly what is inferred by the (perceived) sloppiness of
Dominus Iesus. Rather than just "elements of truth" that are found within other "Churches", what we find is that the "blowhard traditionalists who are always interpreting things in a negative light and making mountains out of molehills" were actually right: the
Novus Ordo teaches, allegedly as a (supposed) legitimate extension of the Catholic Church's magisterium, that entire Churches (which are actually just false religions), with all of their errors, heresies, and denials, though lacking "
full communion", nevertheless belong to the one church, this mysterious "Church of God," providing non-Catholic Christians with access to the economy of salvation.