You're on the right track but you were trying to cut out too many steps.
Your IFRAME is calling "insert.php". So what you need to do is take most of the code from /customer/home.php and paste it into "insert.php". Then include a different smarty template instead of "customer/home.tpl".
Based on x-cart version 3.4.4, insert.php would look like this:
Code:
require "../smarty.php";
require "../config.php";
@include "./https.php";
require "./auth.php";
require "../include/categories.php";
if (!empty($cat))
require "./products.php";
require "./featured_products.php";
if($active_modules["Bestsellers"])
include "../modules/Bestsellers/bestsellers.php";
if(!empty($current_category)) $location = $category_location;
#
# Assign Smarty variables and show template
#
$smarty->assign("main","catalog");
$smarty->assign("location",$location);
$smarty->display("customer/just_the_middle.tpl");
Note that the last line is all I changed.
Then you need to setup a special template for this purpose. I've named it "just_the_middle.tpl" and put it in the "customer" directory. I took the code from "customer/home.tpl" and cut out all the stuff you don't want. Here's the code of "just_the_middle.tpl" (once again, this is based on version 3.4.4).
Code:
{ config_load file="$skin_config" }
<html>
<head>
<title>Some title</title>
{ include file="meta.tpl" }
<link rel="stylesheet" href="{$SkinDir}/{#CSSFile#}">
</head>
<body marginwidth="0" marginheight="0" leftmargin="0" topmargin="0">
{include file="customer/home_main.tpl"}
</body>
</html>
I haven't tested it, but that ought to do it. Good luck.