If you can connect your G1 to your PC/Mac and browse to where the file was downloaded, you will be able to find out if it is an mp3 or not. Ringtones need to be stored on your SD card under a directory called ringtones. I use the path /sdcard/media/audio/ringtones for ringtones and /sdcard/media/audio/notifications for SMS/Email/other notifications.
If you dont store your ringtones in a folder called "ringtones" your G1 will not be able to find the mp3 and assign it to a ringtone, crazy I know but this is how it works.