Erica Sadun over at the Unofficial Apple Weblog has created a native app called Song Sender. To install it you need to have the Instller.app on your iPhone and download the file. It has 3 choices.

1. Set Song as Ringtone
2. Send Song to Friend
3. Play the Song

Now you can set any song in your iPod as your ringtone. And dont forget that you can set different songs for different contacts as well. Read more here

Update: Tip on how to change any song to a ringtone