(This is old, but it seems alot of people are wondering)
Note: Im on vista, itunes 7.6, iphone firmware 1.1.3 (dont think it matters but just in case)
Take an MP3 (ANY, not just itunes bought), cut the part you want (I use Audacity, its freeeee).
Open it in iTunes, right click, Convert Selection to AAC, locate the file, change the file type from .aac to .m4r.
(if you dont see file extensions, open control panel, go to folder options, the middle tab and uncheck hide known file extensions)
after that, double click, itunes should open and it will be in your ringtones section, sync and enjoy!!
no program needed, Ive done it a few times already. If you used this, feel free to click on the thanks