A new version of iTunes has just been announced at the Stevenote and will be available tonight. It has a built-in graphic ringtone creator to convert any song you buy from the iTMS into a custom ringtone. Bad news: it will cost you an extra 99 cents.
You will be able to pick any segment of the song for the ringtone, using a graphic editor to customize them to a total length of 12 to 21 seconds. The ringtones will sync automatically with your iPhone. And yes, for 99 cents on top of the song price, it's a rip-off.