I have a folder structure in my SD card for ringtones and notifications and its worked since I've had the Hero.
Root of SD(not in any folders) make a folder named "Media" inside this make two folders named "Ringtones" and another named "Notifications". You can save snippets in these for your ringtones and notifications.
I remember back in the days ringtones were limited to 30 seconds, not sure if this is still the case or not.
If it is, grab an audio editing program, there are many free choices on Google, and crop an audio file to 30 seconds or less and it should work.
Another option is to download the app Zedge from the Market. Lots of good audio to choose from.