Unfortunately security restrictions in the browser will prevent you
capturing events from within an iframe in the parent page. This is why
the mousewheel isn't working in your example.
If you have control over the contents of the iframe you can try this
approach:
http://jscrollpane.kelvinluck.com/iframe.html
If you don't have control over the iframe you are stuck with this:
http://jscrollpane.kelvinluck.com/iframe2.html
Which is similar to what you are using (except it dynamically gets the
height of the iframe). As you can see, the mouse wheel won't work with
this approch.
Hope it helps,
Kelvin :)