iPython gives error for unexpected keyword argument 'inputhook'

It may be this issue, or a new related since it should be fixed: https://github.com/ipython/ipython/issues/11962

Downgrading prompt_toolkit worked for us: conda install prompt_toolkit==2.0.10

Edit: kmario23's response (upgrade IPython installation) is now preferable if possible!

This error occurs when using a version of IPython less than or equal to 7.9.0. So, a better option would be to upgrade your IPython shell to the version ipython-7.10.1, which also solves the issue:

$ conda update ipython