Dark Falz Luther

Was he a Dark Falz the whole time? Or did he just become one during Episode 2 and was able to retain his sense of self?

Unlike with the Elder and Apprentices we see in the story, Luther was not possessed by the spirit of a Dark Falz, rather he himself manifested it due his corrupting desires for knowledge, essentially meaning that the personality of the Dark Falz is an amplified version of Luther's normal personality. It is not clear exactly when he became one, but given that we know that his current body is that of the original Casra, it is possible that he has been one for some time.

Photons can become corrupted by enough negative emotions, this is how Profound Darkness was first created, a copy of Xion corrupted by the negative emotions of its creators.

This is all spoiler territory, in case anyone didn't know that already.

Long story short, he's one of the only remaining true "Photoners", if not the only one left. His goal was to merge with Xion(whom he saw as his only real equal) to become omniscient, but you stop him from doing that in a way that denies him of it forever and it causes enough negative emotions to corrupt his photons. Being a Photoner he's already exceptionally powerful, and as a result became a Dark Falz.

He hadn't really been one for a while. He actually lead the Oracle's research facilities(and controlled much of the Oracle in general) pretty much up until his corruption. The game goes into his backstory quite a bit throughout all the episodes and we revisit and learn more of it in later story content.

@Tesonael I've gotten through Episode 3, is there more on his story after that?

Most of his background and story takes places through Episodes 1-3 and the various main/side story content. We do get a bit more about him in Ep 5, but he isn't the focus. It's been a while, but as I recall Ep 4-5(and probably some stuff in 6) has info regarding ARKS, the Photoners and other bits of history that indirectly relate to his story.

I think every Dark Falz in PSO2 was originally a Photoner who fell to corruption. [Luther] did not need a new vessel upon becoming a Dark Falz because he was already using the body of the first Casra. Had he not been consumed by [Gemini], his essence would have sought a new vessel after he was executed by the Yonohate