Update. Here is a new simpler answer that works for all regular
$\kappa$, including $\kappa=\omega$. And I have omitted the use
of Fodor's lemma, using instead merely the pigeon-hole principle.
Suppose that $\kappa$ is infinite and we have a projective plane on
$\kappa$ many points, with all lines of size less than $\kappa$.
Since there are $\kappa$ many pairs of points, there must be
$\kappa$ many distinct lines. Enumerate them as $\langle
e_\alpha\mid\alpha<\kappa\rangle$. When $\kappa=\omega$, this is a
simple $\omega$-sequence $e_0$, $e_1$, and so on.
Consider the line $e_0$, which has fewer than $\kappa$ many points.
For each line $e_\gamma$ for $\gamma\neq 0$, let $\alpha_\gamma$ be
the unique element of $e_\gamma\cap e_0$. Since $\kappa$ is
regular, it follows by the pigeon-hole principle that there is a
subset $S\subset\kappa$ of size $\kappa$ with constant value
$\alpha_\gamma=\alpha$ for $\alpha\in S$. Since $\alpha$ cannot be
on all the lines, there is some line $e_i$ with $\alpha\notin e_i$.
For $\gamma>i$, let $\beta_\gamma$ be the unique element of
$e_\gamma\cap e_i$. Since $e_i$ has size less than $\kappa$, it
follows again by the pigeon-hole principle that there is some
$S'\subset S$ of size $\kappa$ with constant value
$\beta_\gamma=\beta$ for all $\gamma\in S'$.
Note that $\alpha\neq\beta$, since $\alpha\notin e_i$, while
$\beta\in e_i$. But note also that $\alpha,\beta\in e_\gamma$ for
all $\gamma\in S'$, which means that all these lines have at least
two points in common, contrary to the requirement (1) that any two
lines intersect in exactly one point. $\Box$
The case of singular $\kappa$ seems to remain open.