Do we still need to avoid using frames and iframes for SEO?

Just because the site with Frames outranks the site without frames doesn't means that frames aren't harmful. The site with the frames may simply rank well despite the frames. The frames may be hurting them but thanks to quality incoming links and/or poor SEO on the other site they rank higher.

Frames are still bad for accessibility and there is rarely, if ever, a good time to use them. Even if they no longer negatively affect SEO it doesn't make them ok to use.

According to this article,

The content in an iframe is not considered part of the parent page.

Seems like that would be pretty bad for SEO purposes.

I think there is a misunderstanding about frames affect SEO that I've heard from a lot of people. There is no inherent penalty for having iframes on your site, as there are several legitimate uses for them. There are iframes in GMail for example. but as tnorthcutt said, The content of an iframe isn't part of the parent page and isn't going to be indexed as such (if at all), so that could be problematic.

Also, there are a lot of factors that go into search rankings, which is why you can't say that one site should be ranked over another because of just one of them.