Some rather complicated instructions for installing custom ringtones on the iPhone have been floating around the net of late. Unfortunately they required some pretty involved under-the-hood tinkering. The newly released iFuntastic is designed to simply this process immensely. This little program allows you to install and manage custom ringtones just by selecting them in a GUI. There is a warning that after using this iTunes won't automatically launch when you dock your iPhone, but you can still sync manually.
iFuntastic is a free download, but you will have to register at modmyiphone.com
Update: Direct link (no registration required). iFuntastic is Intel only.