O'Neill's side were 2-1 up against the highly rated Portuguese at Windsor Park until two second-half red cards allowed Cristiano Ronaldo to take control with a 15-minute hat-trick.
But while that disappointment is still fresh, O'Neill sees the World Cup qualifier at Stade Josy Barthel as an even more important challenge.
Northern Ireland have a proud history of punching above their weight against some of Europe's top teams but have often struggled to see off the relative minnows.
Luxembourg left Belfast with a fortunate 1-1 draw a year ago and a repeat performance would be a deep disappointment.
"We've said to the players that Portugal was our bonus ball. To be honest, the three points we really needed was in this game," said O'Neill.
"The Portugal game was fantastic in terms of positives, and it was hugely disappointing from a winning position to lose the game, but if I'd been given the choice of taking four points I would have rather drawn with Portugal and beaten Luxembourg than the other way around.
"They come into this game with everything to gain. It's similar to us when we go and play Russia and Portugal - they will look at players like Steven Davis and Jonny Evans playing in the Premier League as a big thing.
"It's a big occasion for their players so they will think it's nice to take a big scalp and play against players at this level and come away with a result.
"It is imperative that we take points."