Or you can put the MP3 on your SD card in a RINGTONES folder. You can also have a NOTIFICATIONS folder for your notifications. Android will find them then. However, Rings Extended is the way to go.
On my phone (htc hero) i just download the mp3's to the phone. Then when i open the music in the player and hit the menu button it gives me the option to set as ringtone.
Look at www.androiddownloadz.com for some really cool ringtones by the way.
