Why is the 5 lb pick tool on a pick axe I saw in a home improvement store attached about 2 inches down from the end of the handle?

It's a matter of positioning the head so that the handle can withstand the forces generated when the ax head strikes something. The energy involved could pry the head off the end of the handle or even snap the end of the handle off.

I usually see that the handle fits in a hole in the ax head, and the end of the handle is too big around to fit through the hole. This way the head is secure and one can swing away without too much fear of the head flying off.