The problem is legacy version of IE give iframes a z-index of infinity. The only way to truly solve this problem is to place an iframe on top of an iframe, so it has a z-index of infinity plus one. The menu code has to be BELOW the other code or has to be parsed with JavaScript after the other iframe was rendered.
->> I can't do it from an iframe as a drop menu can't drop outside of the iframe's boundaries
Actually, you can. Look for a drop down menu with IE5 support, and it should do the trick. Here is an example:
http://dhtmlgrounds.wordpress.com/2009/02/10/vertical-dropdown-menu-ie6-z-index-bug-fixed/http://br.geocities.com/romulonf@rocketmail.com/vertical-menu-1/vertical.html