We recently updated our Flying Order book at my club. We couldn't find where in the ANO the 3nm cross country stipulation was. My understanding is that it has been replaced by a vague turn " in the vicinity of the aerodrome" - which you could argue is inside the ATZ I suppose. Which would mean if student was extended downwind flight would be illegal.
All a tad of a grey area I think. Bit like supervision of FI(R). The ANO talks about AFI's which is different from FI(R).