Rulings

Wrecking Ball Arm overwrites all previous effects that set the creature's base power and toughness to specific values. Any power- or toughness-setting effects that start to apply afterward will overwrite this effect.
Effects that modify the creature's power and/or toughness without setting base power and/or toughness will apply to the creature no matter when they started to take effect. The same is true for counters that change its power and/or toughness and effects that switch its power and toughness.
Once a creature equipped with Wrecking Ball Arm has been blocked, changing the blocking creature's power to 2 or less won't cause the creature to become unblocked.