This has now been directly addressed in an interview with director Rian Johnson.
First, he explains that Luke is tailoring his projection specifically enrage Kylo.
"[Luke] is basically tailoring this projection to have maximum effect on Kylo," Johnson explained. "He knows that Kylo’s Achilles heel is his rage, and so that’s why he kind of makes himself look younger, the way Kylo would’ve last seen him in their confrontation at the temple, and that’s why he decided to bring Kylo’s grandfather’s lightsaber down there -- the lightsaber that Kylo screamed at Rey, ‘that’s mine, that belongs to me.’" As far as Johnson's concerned, Luke believes that Anakin's lightsaber will have a much more visceral impact on the erstwhile Ben Solo than Luke's own green blade.
So why doesn't Kylo Ren notice it? According to Johnson, Kylo Ren doesn't totally know what happened to the lightsaber.
"We as an audience saw that... The truth is, we see the lightsaber split in half -- Kylo sees a blinding flash of light and is knocked unconscious, and then Rey takes the lightsaber away before he wakes up," he said. "So if you really want to dig into it and get an explanation, you can say that he doesn’t 100 percent know what happened to the lightsaber."