thanks everyone this thread rules!
-it wasn't mentioned (although it might've been self-explanatory) you need to crack Diego in order to access the program, otherwise you'll get the "unable to locate dongle" error.
-I got the "local mode" screen after writing everything to the phone, as it was mentioned, don't panic, just remove the battery, put it back in and start it up, you'll be good to go.
Thanks again you guys, now I don't have to cry everytime I download a $3.00 ringtone from Telus.
Last question, is the SD Card / Bluetooth the only way to upload ringtones to your phone? or can you use the data cable for that too? thank you.