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Once the bullies block you they can talk about you behind your back. This is quite possible one of the reasons why they do it. The person being bullied no longer sees the vitriol until someone who is not blocked lets them know about it. So blocking has no affect on bullies at all. If they want to record your creations and slander you all over the internet a blocking is not going to stop them - as has been pointed out alt accounts can be used.
It is by far one of the worst things in Dreams because it actually aids the bully and gives him control over his victim. If they can gather support it can literally bully someone off Dreams, and because you are blocked you cannot report them.
As a process to help people feel safe in Dreams it is shockingly poor, and I think we would all benefit if it could be looked into, and a better way of handling offensive content, bullying, the rights of creators over where their work is seen is found rather than this sledgehammer of a blocking process.