While no one has been able to confirm it, but it seems a natural that you should be able to assign a song on your iPhone as a ringtone. We already know you can use any photo, or portion of a photo, as a wallpaper. Those two products are actually the basis for gigantic markets.
Sure, there are already phones that don’t require you to pay exorbitant ringtone fees. The difference is that none of them have popularized that idea yet. The iPhone’s desirability would bring it mainstage. Even people shopping for a more inexpensive phone will be aware of that feature. Then again, maybe people just won’t care. I personally refuse to pay anything for a ringtone, but I also use vibrate and a typical ringing noise.
It blows my mind how many people pay for ringtones of songs they already have on their computer, instead of using a handy-dandy bluetooth file transfer to send them over for free.