The warning seems a strange one given the visitors are actually rated 23 places above O'Neill's side in the FIFA rankings, but a mixture of home advantage and historical superiority mean Northern Ireland go in to their second World Cup qualifier as favourites.
O'Neill is aware his side will have to take on much more of the attacking responsibility than they did in Friday's 2-0 defeat in Russia but is careful not to downplay the opposition.
Indeed, if there was any sense that Luxembourg would be a soft touch they dispelled it in their Group F opener against Portugal - a match that saw them take a surprise lead before losing 2-1.
"When you look at the group we have you could say the perception is that this will be our easiest game, but you'd only need to have a conversation with the Portuguese and their manager to know it's not going to be straightforward," said O'Neill.
"I wouldn't say it's as easy a game as you'll get. If you look at Luxembourg, you'll see in recent times their games have been very close.
"In their last few games they've been beaten 2-1 by Georgia, 1-0 by Switzerland, they beat Macedonia 2-1.
"That gives you an indication that this is not a team, with all due respect, that's a San Marino or a Liechtenstein that is getting beaten 7-0 or 8-0 in qualifying games.
"The biggest thing against Portugal was their work-rate and their willingness to work. They played with a 4-5-1 formation, had a lot of energy in midfield and scored a great goal from a wide area.
"Going ahead gave them a massive boost and they worked very hard for each other. I've no doubt they'll do the same tomorrow night."
Despite his wariness, O'Neill has already been preparing his players to spend more time on the ball than they were allowed in Moscow.
With a second tough away day in Porto in October, Luxembourg's arrival presents a big chance to lay down a marker at Windsor Park and he is eager to grasp it.
"With away games you typically expect you're not going to dominate possession, obviously with a home game we expect to dominate more," he said.
"It gives us an opportunity in terms of how we prepare the team and also in terms of personnel, to make sure we get on the front foot and take the game to the opposition.
"It's an opportunity to get three points, simple as that. We've only played one game and it was probably as difficult as we'll get given the circumstances.
"But this is a home game and every home game you set out to win.
"We have emphasised to the players the significance of our home games. We've all been to Windsor Park when we're on the front foot and the crowd's behind us; it's a great thing to be involved in.
"We want to create that kind of positive energy in the stadium."
Manchester United defender Jonny Evans is fit to play despite feeling some pain in his ankle during the Russia match.
There was some concern he may not be pressed into action for a second time in five days after an injury-interrupted pre-season but O'Neill reported a clean bill of health from his squad.
"There's nothing, no injuries," he said.
"Everyone has trained since we got back from Russia. There never was really any major injury concerns."