In Moodle 2.0 you cannot just assign any role in any context. You can only make 'sensible' role assignments. When you define a role (Admin -> Users -> Permissions -> Define roles) you say which contexts that role should be assignable in (system, course, user, etc.)
By default, none of the roles are assignable in the user context, so that option does not show up. Once you create a role that can be assigned in user contexts, then you will see the assign roles option in the settings block when you look at a user's profile.