Unhallowed Cathar can't block.
For more information on double-faced cards, see the Shadows over Innistrad mechanics article (http://magic.wizards.com/en/articles/archive/feature/shadows-over-innistrad-mechanics).
If a card that isn’t a double-faced card becomes a copy of Loyal Cathar (due to Cytoshape, for example) and then dies, that card won’t return to the battlefield. It will remain in its owner’s graveyard.
Another double-faced card that becomes a copy of Loyal Cathar and then dies will return to the battlefield with its back face up.
If you gain control of a Loyal Cathar owned by another player and it dies, it will be put into to its owner’s graveyard and then return to the battlefield under your control.
When Loyal Cathar dies, it will return to the battlefield with its back face (Unhallowed Cathar) up. It doesn’t return to the battlefield and then transform.