Apple TV 3gen wont set date/time, update or restore

I recently bought the 3rd generation apple tv.

It was great up until a couple of weeks ago when I stopped using it for a while. I tried starting it back up today and it began to set the date and time. After about 20 minutes I had enough and pressed the menu button as it said to do so below so I could set this myself.

When the menu popped up, I expected to see my "app" view containing netflix, music, movies etc. All that was visible was Computer and Settings. I clicked settings and it appeared that I was connected to my wifi just fine and the date and time was already set. I decided to do a complete restore of the system which would also update the software. As the update began another screen appeared saying the update could not be completed at this time and neither could the restore.

I read some dicussions saying to plug the apple tv directly into my macbook. I tried doing this and it was not recognized in my itunes.

Could this be a hardware problem or is there something happening with the network that I am not aware of?