Here are the steps I used to manually install FroYo (EPE54B to FRF85) on my AT&T bound Nexus One:

1. Download the update from Google's server.
2. Move the archive to the root of the SD card, rename it: update.zip
3. Shutdown the phone by holding down the power button, and then selecting Power-off. Wait for the phone to shutdown.
4. Hold the volume - button and press the power button together, wait for the white boot screen.
5. Select Recovery using the volume up and down buttons and then press the power button.
6. As soon as the Android robot holding a sign with an exclamation point is displayed, press volume +, volume - and the power buttons together.
7. Select apply sdcard:update.zip with the trackball, and press the trackball.
8. Select reboot system now when the update is done.

That's it. Pretty straight forward.