After playing around here is what I did:
Clear all versions (5.x,6.x,7.x,8.40) of JAVA from the computer and install 8.45 the latest. Note: Nothing in the user guide about JAVA other than it talks about version 7
(Eclipse 4.4 supports JAVA 8)
Install Clean on Windows 7 KDS 3.0.0
Launched KDS and clicked Help/Check for Updates - It updated the compiler
Next clicked Help/Install New Software in the work with drop down there was: type or select a site - I clicked the down arrow on the drop down box and the only thing in the box was --All Available Sites-- No sites.
I went to my Windows 10 box and Copied all the sites to a file then one by one pasted them into the Windows 7 KDS 3.0 install.
Once that was done when Freescale KDS Update Site - http://freescale.com/lgfiles/updates/Eclipse/KDS was selected I could check KSDK 1.2.0
So my question is what is "Install New Software. Then go to ..\KSDK_1.2.0\tools\eclipse_update folder to find the appropriate Eclipse update"
The other issue was JAVA, I had to have the right version, that version had to be enabled in the control panel, the browser had to have JAVA enabled and Google Chrome is using PPAPI now so JAVA will not run in Chrome.
Someone in another forum explained your switch to embedded tools so it appears this version doesn't need the Tools tab?