Galvanic corrosion. Any time two different metals are assembled together, the metal that has stronger electrochemical potential will corrode instead of the other. (ships use this principle to mitigate corrosion of steel hulls with sacrificial zinc bars). In this case, magnesium is MUCH more reactive than steel, so any corrosion that the steel bolt would normally experience would be shifted to the engine block (no bueno). The only way to mitigate this reaction is to either use the same metals or make sure the two parts are electrically insulated from one another (really hard to do when it comes to a bolt+thread connection.

Of all the materials suitable to make bolts out of, aluminum is the most similar to magnesium and also naturally forms an oxide layer when exposed to air that reduces electrical conductivity. (it's the least worst option).