Yes, iOS 4.2 text tones currently individual, not custom

iOS 4.2 adds the ability to set individual text message tones to your contacts (finally!), but not custom tones, not even ringtones purchased from the iTunes Store. Apple seems to be keeping text tones completely separate from ringtones (and since they're shorter and functionally different -- they don't need to keep playing for a long period of time until you answer -- that may make some sense). Yup, that means you're still limited to the built in choices.
People want custom text tones, however, so here's hoping Apple adds a way to do that in one of the next few betas. (And not just through purchasing, because you just know the record labels would love to charge $0.99 for a 2 second text tone.)
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Rene Ritchie is one of the most respected Apple analysts in the business, reaching a combined audience of over 40 million readers a month. His YouTube channel, Vector, has over 90 thousand subscribers and 14 million views and his podcasts, including Debug, have been downloaded over 20 million times. He also regularly co-hosts MacBreak Weekly for the TWiT network and co-hosted CES Live! and Talk Mobile. Based in Montreal, Rene is a former director of product marketing, web developer, and graphic designer. He's authored several books and appeared on numerous television and radio segments to discuss Apple and the technology industry. When not working, he likes to cook, grapple, and spend time with his friends and family.