Update: I’ve been able to reproduce the issue and it looks like you found a bug.
While we’ll work on fixing it, could you switch to either the Legacy or the fancyBox2 script version on Settings > Media? It’s the first option in the Fancybox section.
The Legacy version will give you the script as it was in previous versions, while fancyBox2 is a more modern version with touch support but that’s not relevant in case of iframes…