What is one way in which Book 1 of Spenser's The Faerie Queene is theologically Protestant in nature? Would the answer lie in the theme of Faith vs. Works?
The dominant Protestant theme in Book I is Holiness. Spenser's allegory is threefold: moral, religious, and personal. Critics agree, as represented by George Wauchope, Ph.D. in the 1921 Introduction to The Faerie Queene, that Red Cross Knight allegorizes the moral theme of holiness and as such also stands for the religious allegorization of the Protestant Church, or "church militant," as Wauchope puts it. According to this analysis, Book I focuses on personal and religious holiness as understood by the Reformers of Protestantism.
This is not to say Faith vs. Works isn't a thematic element of Book I; it is, but a minor one. In the four stanza introduction to Canto 1, Book I, Spenser honors "Fierce warres and faithfull loves." Works are shown in the need to actively reject the the minor characters who take on personifications opposed to holiness, like infidelity (Sansfoy) and lawlessness (Sansloy) and fear (Sir Trevisan).
So the Holiness and "faithfull love" that allows the Red Cross Knight to perform good works are both significant to Book I. Nonetheless, the dominant theological theme of is Holiness. This analysis is supported in the Canto 1 introduction when Spenser writes of the Faerie Queene's shinning "light"--a Biblical symbol for holiness ("the Light of the world" Gospel of John)--
Great Lady of the greatest Isle, whose light
Like Phoebus lampe° throughout the world doth shine,
The answer to your question is that Book I is theologically Protestant in nature because (1) the Red Cross Knight allegorizes, or personifies, Holiness (moral allegory) and the Protestant Church (religious/spiritual allegory); (2) the Queene, in part, allegorizes the "light" of holiness and Protestantism; (3) and true spirituality, which is Protestantism. The theological point being that Reformers defined holiness as direct, individual contact with God for direct forgiveness of sin. The Reformer stance rejected the Catholic concept of holiness (1) that relied on dependence upon the Pope and clergy; (2) that could buy forgiveness; (3) but that could not attain forgiveness without intervention from a third party, i.e., the clergy and Pope.