Others might have better explanations because I don’t have a lot of information regarding this. However, I do know the following:
Politics in “Germany” or the Holy Roman Empire back then was very complicated due to the fact that there were many different principalities loosely (very loosely) united under one elected Emperor.
Some principalities were ruled by local kings, princes, archdukes, dukes, earls, counts, prince-bishops, etc. The prince-bishoprics were where those areas were theocracies, where the Local Bishop was also the secular administrator of the area. In those situations, the bishop was playing two independent roles. That of diocesan bishop and that of local prince. In the bishop’s role as Bishop, he answered to the Pope. But in the bishop’s role as prince, he did not. Hence, it was a complicated system and why the Church no longer allows this to happen.
But we need to learn to separate the secular activities from the spiritual activities. The Pope and Church had no secular power in the Holy Roman Empire. The Papal States were not part of the Empire. However, the Pope and Church did have Spiritual Power in the empire, just like they have spiritual power in the world today, but only has far as the Holy Roman Empire allowed the Pope’s spiritual influence to influence it.
Where the largest issue would come in is when a prince-bishop’s two different roles would be in conflict with one another.
Now regarding the Pope’s disapproval via Zelo Domus Dei: this is more complex that it would seem. The Pope isn’t infallible when it comes to political matters. However, you will never have a Pope lie down and be accepting of heresy or sin becoming legalized. Additionally, part of the settlement meant that local prices, dukes, etc. were able to choose the religion for their people, not that the people would choose their religion on their own. The Church would have not condoned Catholics being forced or coursed into Protestantism by their local government (which is what happened in my locations). Nor would the Church condone baptized/confirmed Catholics to leave the Catholic Church. The Bull would be really directed to those baptized/confirmed Catholics who left the Church on their own and/or the leaders who were forcing Catholics to leave the Church.
People born into Protestantism or convert into Protestantism from non-Catholic religions are not and were not considered heretics. Only a baptized or confirmed Catholic can be considered an individual heretic by the Church, even though Protestantism is considered a heresy.
Additionally, for some princes, dukes, etc.; their main reason to become protestant wasn’t religious. It was greed, as they wanted to seize Church lands for themselves and bring them under personal control.
I pray I’m making sense.