There are some interesting theories here if you want to take a look. Click on the 'General' category and select 'Lightsabres' for a long essay with many possible explanations ...
George Lucas told Ralph McQuarrie (sp? the guy who did most of the origional concept art) that he wanted people with laser swords. Ralph realized that it would go on forever and that would be unweildy to use in combat, so in his drawings he just had it end about three feet from the handle, the length of a typical Medieval sword.