Here is a much quicker way to install the update onto the ATV 3:
Download one of these depending on which version you have:
ATV 3: http://appldnld.apple.com/iOS8/031-05613.20140917.R9AQa/AppleTV3,1_7.0_12A365b_Restore.ipsw
ATV 3 (New): http://appldnld.apple.com/iOS8/031-05663.20140917.n2Zd6/AppleTV3,2_7.0_12A365b_Restore.ipsw
Plug into your computer with micro usb cable and plug in the power lead.
With option key held down, press restore button in iTunes, select the file you downloaded, restore and when it finishes updating, remove the leads.
All done in 10 min.
It is much faster this way than waiting for the server which can take hours.
I have been trying two days and can't even download these files. Are there any other servers I can get this file from?