To get iToner working with the latest iPhone software 1.1.3 try this workaround which is posted on the developers forums.
1. Launch iToner and connect your iPhone
2. Use iToner to remove any existing ringtones.
3. Import any of your ringtones into iTunes if they are not already there.
4. Select your ringtone in iTunes and choose "Convert Selection to AAC" from the Advanced menu. (if this option in the Advanced menu says "Convert Selection to [any other format], then open iTunes preferences, click on Advanced, then Import. Then change the "Import using" menu option to AAC. After this the item in the Advanced menu will refer to AAC.
5. Drag this converted file to your Desktop.
5. In the Finder, change the file extension from ".m4a" to ".m4r". Select the file and then go to the File menu to Get Info. Change the file extension to m4r. You should get a dialog box confirming the change. Change the filename for this file only (you will have to do that for each ringtone, but if you go ahead and say yes to using m4r for all aac files, all of your audio files will be converted to ringtone format).
6. You can now use iToner to sync the ringtone back over.