This is no trivial search and as I was not able to source any information from the MIT website - this is a part answer.
Any Internet search for the term Geoalchemy brings up the a support library for SQLAlchemy, that adds support for spatial databases. (Stack Overflow has a tags for geoalchemy and geoalchemy2)- none of which is really related to why the department was named so, interestingly, the program has a MIT licence.
Some examples of the usage of the term extend to recent times:
Geo-Alchemy: Turning Sand into Sandstone and other Microbiological and
Bio-Inspired Ground Improvement Technologies.
It seems from these examples, past and present, that the term 'geoalchemy' stems from the terms geology and alchemy and was (and in some cases, still is) used as a fancy way of saying 'geochemistry'.