Your connection time is fine, you will have no problems at all as your connection is T2-T1.
LH will automatically check your luggage into MAN, and you won't need to pick it up.
However if you really want to stop your journey in London it is possible, although probably technically violates the terms of your ticket. As long as you don't do it too regularly you will be OK doing it just the once though.
The trick to get your bag tagged as far as London is merely to ask the LH agents in MUC to NOT tag it to MAN. Bags misconnect at LHR all the time, so if you just say you are worried about a possible misconnection of your bag they should be fine with it.
This gives you the option of rechecking your bag at LHR if you do in fact wish to continue to MAN at a late stage.