magical.... it sounds more whimsical and fun... Magic sounds like the cake has powers or is supposed to do something... Just my opinion... Good Luck!! 
wow this is tough, and looks like a bit of a tie so far!
hmmmm
I think I like #1, Sherrie's Cake Magic better. It puts more focus on you as the creator of the cakes and business owner. Sort of like saying you can do anything with cakes.
Magical cakes puts the focus on the cakes, kind of like someone mentioned, like the cakes are magical-themed or have special powers. I picure cakes floating around a shop with this for some reason! LOL.
when I first read you post, I liked the Magical cakes better, but now after reading all the other posts I like cake magic... shorted, to the point, and like stated before, sounds like you can do anything with cakes.
Me too!
I vote for the first one as well. There is just something in that name that says special to me.
I think the second one is too whimsical too. Makes me think of magic stuff.
Good Luck!
#1 Cake Magic
Same reasons as czyadgrl.
Cake magic sounds more universal appeal wise...magical cakes sounds more limited in it's appeal to the general public.
I think I like Sherries Magical Cakes better than Cake Magic...when I first read Cake Magic, I thought it sounded more like a product than a business.
But I do like them both so whichever you decide will be great! Plus, I've never heard of anyone naming their business anything like that..so great job and very creative!!
Definitely Cake Magic.
It brings the song Strange Magic by ELO into my head. Something homophonic about it. Good name, good tune.
Theresa 
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