Haskell, 84 bytes
f s@(x:r)|(n:m,x:r)<-span(`elem`['0'..'9'])s=(x<$[1..read$n:m])++f r|1<3=x:f r f e=e Explanation:
span(`elem`['0'..'9'])s splits the given string s into a prefix of digits and the remainder. Matching on the result on the pattern (n:m,x:r) ensures that the digit prefix is non-empty and binds the character after the digits to x and the remainder to r. x<$[1..read$n:m] reads the string of digits n:m as number and repeats x that many times. The result is concatenated to the recursive treatment of the remaining string r.