What is "New Creation" according to Protestants? 2 Corinthians 5:17 (ESV)
  
  Therefore, if anyone is in Christ, he is a new creation. The old
  has passed away; behold, the new has come.


It is undeniable that no one can live a perfect sinless life like Jesus. When we receive Jesus(i.e. born again), what exactly happens spiritually and physically? Our body remains the same, we are still struggling with sin(though it has reduced to some extend). What is the essence of New Creation? Is it a 'change of heart'? or 'change of character'? or 'rebirth of spirit'? How can we identify or know that something has changed? To what degree of 'change' is counted as a new creation? What is being created new here? It may be difficult to explain but attempts must have been made.

How have Mainstream Protestant denominations/theologians explained what is "New Creation"?
John 3:4-10 Nicodemus saith unto him, How can a man be born when he is old…Jesus answered, Verily, verily, I say unto thee, Except a man be born of water and of the Spirit, he cannot enter into the kingdom of God…Nicodemus answered and said unto him, How can these things be? Jesus answered and said unto him, Art thou a master of Israel, and knowest not these things?


Notice that this conversation took place prior to the cross.  Also notice that Jesus chastised Nicodemus for not knowing of the new birth.  


  Genesis 6:8 Noah found grace in the eyes of the LORD


As did those mentioned in Hebrews 11 that placed their faith in the promise of God.

Christ said: 


  John 1:7 Nevertheless I tell you the truth; It is expedient for you that I go away: for if I go not away, the Comforter will not come unto you; but if I depart, I will send him unto you.


This new thing that required the departure of Jesus Christ and His finished work established by His seat at the right hand of God the Father, enables the Holy Spirit to dwell in our heart. 

The Holy Spirit bears out the will of God the Father.  Jesus Christ is the eternally-begotten, the manifest "will" of God the Father.  Christians are equipped by the overshadowing presence of the Holy Spirit to bear out Jesus Christ in their lives.  This is why Paul says:


  Galatians 2:20 I am crucified with Christ: nevertheless I live; yet not I, but Christ liveth in me: and the life which I now live in the flesh I live by the faith of the Son of God, who loved me, and gave himself for me.


So, the new creation is "Christ in our life"!