As with any process that has to update millions of consoles there will be a few bumps in the road and this update is no exception.
According to the Xbox Live Operations Blog they are experiencing issues in a couple of areas:
Problems downloading the new update or new/updated applications like Zune or Netflix. There are a couple of different error messages that you might get here, and they all mean essentially the same thing – "Please Try Again".
Being asked to pay for content you want to download that you’ve previously paid for. If this happens to you, simply decline and repeat the download process. This problem is intermittent, and typically on another attempt LIVE should recognize that you already own the content and allow you to re-download it for free.
I have seen the first issue myself when I tried to access ESPN and the avatar editing screen. The ESPN update did finally download but it took several attempts to get it done.
Patience is the key here as this updates distributes out to everyone’s Xbox 360 console.
Keep an eye on the Xbox Live Operations Blog for further updates.