It doesn't work for me on the LG Ally. I created the folders as you indicated, and copied a couple MP3 files to them. But I still can't see them in the list of Ringtone or Notification files.
Aha! What wasn't mentioned is that I have to power down and restart the phone (reboot) to make them appear in the menus. Once I rebooted the Ally, I found the MP3 files within the menu selections. If I make anymore changes to the files (moving them around, adding more MP3 files) I have to reboot the phone to make those changes show up.