Your code is highlighting the entire body, however the content inside the iFrame is not, by most browsers, considered to be in the same body as the current document.
In short, $('body') includes everything in the page but things inside an iFrame is excluded (due to the awkward nature of iFrame).
Highlight the content by explicitly selecting it using jQuery instead.
I tend to avoid iFrame at all cost. jQuery is pretty powerful in real-time manipulation of HTML contents that I was never really forced to use an iFrame.