Ringdroid 2.4

butterscotch says:

Create a ringtone by editing any music track in your library!

the author of this app says:

Create your own ringtone by editing a music track in your library, or record a new one directly from the phone.

New version 2.4 fixes bugs related to assigning a ringtone to a contact and adds support for additional global locales.

Minimum Android system version is 1.6 (donut); also works in 2.0 (eclair) and 2.2 (froyo).