I've dealt with this scenario extensively, so I think I understand what you are trying to do and what you are asking.
As you've discovered, you cannot use client-side script to work with the document object model of remote site content. (Even if that "remote" site is on your own server--just another domain.) I don't have a perfect solution, but I have 2 options for you based on your needs.
1. Don't use an IFRAME, use a normal FRAME. For example, your content on the top or left, and the content frame on rest of page. It will auto-size for content whereas an IFRAME will not. (I also recomment avoiding frames wherever possible, but for some applications, they really fit the bill.)
2. Do you just need the display of the remote content? If so, you can screen scrape the remote content server-side, then display it in your page. If you do this, it becomes your "own" content, and you can do anything script-wise you want. Most likely, though, you actually want your users to work with the content--clicking links, etc. that reload from the remote domain. In this case, a screen-scraping solution does not help you.