The Balkans weren't part of the Holy Roman Empire (they were very much part of the Ottoman Empire in 1648), so I will leave it to others to say what perceptions of that area were at the time, although I suspect the joke is more a reference to more modern views of the Balkans.

As for Luxembourg, no. Luxembourg was in fact extremely desirable real estate in 1648, and for quite a bit of time both before and after. The city of Luxembourg itself was built around a giant Fortress of Luxembourg, which itself was built on (and in) a large outcropping of rock (The Bock). The fortifications were mostly dismantled in the 1860s, but there are some photos extant of them before that (and you can visit the tunnel system in the rock to this day). The fortress gained a reputation as the "Gibraltar of the North", and in 1648 was an important strategic link in the "Spanish Road", which was the road whereby the Spanish Hapsburgs transported troops from their possessions in Italy to their possessions in the Low Countries, especially in the period when they were fighting with the Dutch Republic. The Hapsburgs had inherited the Duchy of Luxembourg along with most of the rest of the Low Countries in 1477 from the Burgundians on that dynasty's extinction.

Luxembourg was also right next to the border of France, and so it became a desirable prize for the French (or anyone who wanted to contain the French). The French captured the fortress in 1684, which eventually precipitated the forming of the League of Augsburg, and the war named after that league (1688-1697), which eventually saw France return Luxembourg to the Spanish Hapsburgs. The French would again occupy Luxembourg in 1795 (although this time they took it from the Austrian Hapsburgs, who had gained possession of it and the Hapsburg Low Countries in 1714), and again give it up in 1815.

It's also worth noting that the Duchy of Luxembourg was actually much larger than it is today - today's Grand Duchy is actually a minority of the former duchy's territory, which was partitioned among its neighbors over the years, with most of the territory going to Belgium upon that country's independence in 1839 - this is still organized as a Belgian province of Luxembourg. In 1815, the Duchy had been linked in personal union with the Dutch monarch, but was also a member of the German Confederation and had a contingent of Prussian troops in the duchy as a deterrent against the French. The French (under Napoleon III) almost went to war with Prussia in 1866 over an attempt to buy the duchy from the Dutch - the deal was nixed, but the Prussian troops withdrew anyway and the fortress was mostly dismantled. Ultimately because of succession laws Luxembourg stopped being ruled by the Dutch monarch in 1890.

So: Luxembourg was very much a strategic prize in 1648. Yet at that time it had been firmly in Hapsburg hands since 1477, so no one was able to seriously challenge their possession at that time, although France most certainly did when it began to expand at the Hapsburgs' expense later in the century.