You just happened to run into an bug produced by your Apple TV and your Internet connection. Even though they don't want you to switch off they device disconnect your Apple TV from your power chord. When it restarts you can use your Apple TV like before. Often a day later the updates is done in less than 10 minutes. I happened to run into this problem a few times since I have my Apple TV 3
I've just had the same problem.... Update seemed to freeze up in step 1. After over an hour, i gave up and unplugged the power - after 5 seconds plugged it back in. Apple tv restarted normally, I ran the update again and it ran within 15 mins. So thats the fix. By the way, have seen comments elsewhere that some have had updates that only work over wireless, not Ethernet cable...