O'Neill is still chasing a first win after five games in charge of the national side, and failure to take all three points in a game that saw them have three goals disallowed, as well as striking the post through Chris Brunt, will take some getting over.
After a more predictable 2-0 defeat in Russia on Friday, it also leaves Northern Ireland's World Cup qualifying hopes in an early state of disrepair.
Things had seemed much brighter when Dean Shiels produced a neat lofted finish to put the hosts in front after 14 minutes, but the inability to add a legitimate second was paid for in full when Daniel Da Mota scored a late - and heavily-deflected - equaliser via Ryan McGivern's shoulder.
"I'm extremely disappointed, it's a game we clearly should have won," said O'Neill. "We had numerous chances in the first half to add to the one goal we had and we played poorly in the second half, although we did have chances to add to the score.
"We got caught with a very poor goal at the end. I don't think we deserved that on the night even though the second-half performance was way below the standard we'd expect.
"The players know themselves they let their standards drop in the second half. It's pretty evident in the dressing room afterwards that they know that.
"We had the chance just before their goal to go 2-0 and we hit the post. We don't take that chance and we drop two points from the game."
Asked to assess where his side went wrong after the interval, O'Neill blamed looser passing and a growing sense of nervousness among players who have now not won for nine matches.
"The biggest difference was we didn't pass the ball as well," he said.
"We let our energy levels drop, they pressed us a bit higher up the pitch and we didn't deal with that as well as maybe we could have done.
"Subsequently we got a very disjointed performance and gave the ball away too easily, which gave them a bit of hope.
"While you couldn't see it coming as such, at the back of your mind you are thinking 'we're going to get caught with something here'.
"In recent times given the experiences we've had with results, we probably let anxiety creep into our play too easily and our performance suffered as a result."
Luxembourg manager Luc Holtz was understandably in significantly higher spirits.
He was delighted with the result and even managed a veiled warning to expect a tougher challenge in the return fixture.
"You have to look the clubs where the Northern Irish players play and where the Luxembourg players play, it is a big difference," he said.
"In my opinion this is a big result for our team. This is a good result for us and when we play at home we are stronger than when we are away."
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