Mad Ringtones let me know about their new website and I had a blast using it. The simple flash app on their site lets you upload a MP3 from your hard drive or select a YouTube video and create a ringtone with a few clicks. You can then share this ringtone with others on the site.
I am not sure how they are dealing with copyright issues but if you own the MP3 you should be fine. I just like how simple it is to highlight the exact portion of the MP3 you want for a ringtone. You can even make it fade out.
Check it out at www.madringtones.org and let me know what you think!