latest version that was released on November 29th, 2012.
I thought Apple products were just supposed to work. Oh well...
Evidently there is only an issue updating if connected to the internet by an ethernet cable. So the answer is to unplug the cable, turn wi-fi on, restart the Apple TV and then restart the update.
Okay, that's a lot of steps, here's the break-down.
1. Unplug the ethernet cable from the back of the Apple TV unit.
2. In settings, go to General -> Network->Wi-Fi. Select your wi-fi settings, put in the password if you set one (you did set one, right?).
3. Hit the menu button to go back to the General screen then select Restart.
4. After a Restart, go to General -> Update Software. Select to update the software. Wait as the software is updated.
5. Plug the ethernet cable back into the back of the Apple TV unit.
6. Sit back and enjoy the update.
Really easy, just a shame that you have to go though all of these steps to get it to work.
No, not everyone will have a problem with updating directly but if you do, here's the work around.