It doesnt matter which HDMI port you use. It just happens that I am using 3. Updates are usually done on the ATV itself. You need to go into settings and find software update (its under "System") It can take a while to get done and you must NOT uplug, disconnect or anything else whilst its going on. It requires a valid AppleID login of course.
If you already use the remote to connect to it, there should not be a problem. I'm no expert so not sure what to do beyond that.
Have you tried jaysee's suggestion of trying it in a different port or on another TV? It might be the TV thats the problem.