you can create a ringtone from any song on itunes, not just ones you purchased.
select whatever song you want, right click it to bring up more options and select 'get info.' under the options tab in that window you can edit the length of the song- the ringtone cannot be more than 30 seconds- as well as the starting point. you then have to create an AAC version of this (in the import settings make sure AAC is the selected format. right click and select 'create aac version'). drag the AAC version to your desktop. it should have an extension of .m4a - change it to .m4r as this is the extention of all iphone ringtones. delete the original .m4a version from itunes, double click the .m4r file on your desktop and it will open in a ringtones folder in itunes.