I don't think that's true, even if you look at most open source software. On one extreme, Mediawiki is a pretty complicated piece of software, approximately 900k lines of "core" PHP/JS code plus another 1.5 million lines worth of extensions, many of which are pretty mandatory for basic functionality.
Is it "good" or "bad"? I'd argue that it's both. It's an important piece of software but a bad architecture, and it's grown in complexity over the years. I think you could write a piece of functional wiki software in about 500 lines of code, but complexity and features win in the marketplace, even if it's just for "mindshare".
In 500 lines you can write a self-hosting compiler, a checkers AI, a usable text editor, a compiling-to-DFA regex matcher, Bayes net inference, or a ray tracer, to mention the first examples that come to mind. (Ordinary lines, not golfed.) Most programs aren't so polished, but when yours gets 10 times longer than a Lisp compiler, it's worth asking why.
Yes, it's arbitrary and there are of course exceptions and perhaps domains where it may not apply at all. It's just a recurring observation that I've made (mostly but not only) in dynamic languages.
Pretty much all good code that I've read or written was compartmentalized into units of roughly 500 LOC. A big program may be composed of many such units, but it was almost always a bad sign when a divisible part would exceed the "magic" number.
What comprises a divisible part of course also varies by language; at the least it'd be the LOC-per-file, but usually it'd be a self-contained and separately tested module.
In a moment someone will probably come up with a great piece of software where this doesn't hold true, I'd actually be curious to see it.
Depends on the problem. Sometimes a "short program" means omitted error handling, lax input validation, not covering necessary edge cases and generally the sort of thing that leads to bugs and security holes. I prefer the word "concise"- brief but comprehensive.
Is it "good" or "bad"? I'd argue that it's both. It's an important piece of software but a bad architecture, and it's grown in complexity over the years. I think you could write a piece of functional wiki software in about 500 lines of code, but complexity and features win in the marketplace, even if it's just for "mindshare".