The comment of the function magik-session states:

The command automatically expands environment variables using Windows %% and Unix $ and ${} nomenclature.

This is currently not true for the Windows %..%-nomenclature.

A possible solution would be to add the advice given within the misc-sw.el file of the former EMACS, delivered with SW 4.x:

(defadvice substitute-in-file-name (before handle-%-variables activate compile)
  "Handle %VARIABLE% Environment variables." 
  (let ((file (ad-get-arg 0)))
    (while (string-match "%\\([^%]+\\)%" file)
      (setq file
        (replace-match (concat "${" (match-string-no-properties 1 file) "}") t t file)))
    (ad-set-arg 0 file)))

The drawback would be, that this influences a general EMACS function, not only the functionality for the magik mode package.
Surely there would be other solutions without that drawback.

On the other hand, I don't see yet, why this function should be essential.

So I see three possible ways to handle this issue:

(a) Change the comment and the default value of magik-session-command-default in a way, that the %..%-Syntax is no longer included. It might be helpful to add a comment about this, in the README.md file

(b) Add a comment in the README.md file that describes, that a user may add the a.m. defadvice-code into his/her personal .emacs code, if he/she want to use it

(c) Add the missing funtionality to the magik-session function without changing behaviour of the global substitute-in-file-name function.

The solution (c) obviously would be the nicest, but I'd also agree with the other two.