How comes the height in % in both tags doesn't works when an application.cfm exists. When I remove the application.cfm everything works fine.
<iframe src="messages.cfm" width="95%" height="74%"></iframe>
<cfform format="flash" skin="halosilver" wmode="transparent" style="backgroundAlpha:0;" height="48.3%"></cfform>
Any Application.cfm (note the capital letter, btw), or your specific Application.cfm? What about an Application.cfm file which simply has a CF comment in it, and nothing else?
The file might have style settings that overrule those of your iframe and cfform.