You're not the first to hit upon this. A ui-dialog is at its heart a ui-resizable and a ui-draggable. I think that the choice of parameter object for .dialog() is very unfortunate. When I derive widgets from these base classes, I tend to initialize my widget({ resizable: { ... }, draggable: { ... }, widgetStuff }). Why do I blabber on about this here? Well, check out the docs for .draggable and you will find there an option "iframeFix". I never done what you are doing but this sounds like what you want. How to get it (given the unfortunate parameter object) you ask? Do like so:
var dialog= $(...).dialog();
var widget= dialog.dialog("widget");
widget.draggable("option","iframeFix",true);
Might fix your problem.