Purchased iTunes music - How to transfer from Library to Ringtones

I have purchased iTunes items of music which appear in my iTunes "Purchased Items" on my iPhone (3gs) and in my "Playlists" on my computer (Windows XP) ( achieved with Home Sharing).

I want to transfer some of this music to RINGTONES so that I can apply individual pieces of music to my CONTACTS together with their photo, (achieved by editing from Camera Roll).

Can anyone please advise me on how to do this, via the computer or using the iPhone?