For a domestic computer it is probably okay to have the updates fully
automatic, however for business or mission critical machines it is probably
advisable to select the option where the machine will automatically download
the updates but wait for you to tell it manually when to install them. This
also allows you to turn off things like Anti Virus programs which you should
always do before installing updates.
Since part of my "Job" is testing I generally have all machines on fully
automatic to see what breaks and to be honest I haven't had an update break
anything yet. How long it takes to download updates depends on (obviously)
the size of the updates, how many there are, the speed of your connection
and what version of windows or Microsoft update you are using so the start
time of 3 am is a reasonable guess assuming you have machines that are
always on. If they are not always on try to pick a time when they will be on
but not used much... and remember that's the start time so allow enough time
for it to finish if you can.