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Great shout - done.

That's it! Thanks Baptiste - the anchor text is going to be an image and an unoptimised image at that... I knew there was a reason that my brain was kicking up a fuss with this code.  Brilliant, thanks.

If you goal is to 301 all the pages of the new site to the old one, I would suggest to make the new site with the right pages for the different search terms you target, let it be indexed and ranked, get a few backlinks to keep the domain somehow "visible" to google. This process should take a couple of months. Once this is done, create a redirect script on the new site. If you want to rank deep pages of the old site, the script should redirect user to the page of the old site which correspond the best with the new site page. If you want to rank the homepage of the old site, just redirect all requests to this homepage.

The page on your domain that has the iFrame in it would get credit for both (assuming you have analytics on it :D). The visitor would actually be on your site and the iFrame is just a window to the other site where they can see the content.