1. MP3s will work fine on any of the newer BlackBerrys, including the Storm2
There are several free ringtone converters/generators.
One good free online version is Cellsea Free Online Ringtone Maker
2. Correct size. JPGs are fine, work well. Any resolution higher than about 96dpi is lost. 72dpi is best.
3. I'd recommend sticking with the Stock themes for now, although I have found a GREAT OS5 Storm theme just recently I've been using, called Dave Pro 5.0 Blackberry Theme Dave Pro for OS 5 - BlackBerry Forums at CrackBerry.com