Yes ofcourse
create a folder called ringtones on the root of your SD card and put whatever mp3 file u want as a ringtone. Then set that as your ringtone through the settings menu.

 

Yes you can play it on the phone go into music and press play then press the menu button and you will see the option of set as ringtone (this will be your main default ringtone) the other option is go into people and edit contact and you can give each person a specific ringtone. also check out zedge on the market it seems quite good

 

@joemoe90 or if you download an application called "ringdroid" you can edit ur mp3 files and set them as your ringtone, you can even start the tone half-way through the track if you wish

 

Best method is the one above, going from the menu in the music player - you can also assign ringtones to individual contacts from here (easier than editing the contact I think). Of course you will need to add folders like above to add sounds for notifications and alarms (with appropriately named folders of course).