Hooded Horror can't be blocked as long as defending player controls the most creatures or is tied for the most.
The number of creatures each player controls is evaluated only as blocking creatures are declared. If, at that time, the defending player doesn’t control the most creatures or isn’t tied for the most, Hooded Horror can be blocked.
Once Hooded Horror is blocked, it doesn’t matter if the defending player controls the most creatures. The block won’t be undone.