The plugin will work with steppers. However, you will not be able to use an encoder for closed loop operation. If you want to use an encoder for moving and axis, then you will have to use a spare Galil axis main encoder, as the secondary Galil encoders are not available with axes configured as stepper axes. But it makes no difference what type of encoder (linear or rotary) is used as long as it outputs quadrature. Just that most people use a rotary encoder (hand wheel).
Just to be clear, MPG stands for Manual Pulse Generator. It's primarily used for manual control of an axis. And stepper motors do not use an encoder to operate like servos do. With steppers, you run "encoderless" (open loop) and there is no servo PID loop where encoders provide feeedback. Mach simply says step this many steps and assumes that the motors arrive at their final destination.
Read the Galil manual for you controller to find all of the details about running stepper motors on the axes. It's very important that your stepper motors are correctly sized so that they do not "loose" steps.
Steve