Why doesn't tar recognize .iso files, even though the documentation says it should?
Chances are that it is not a pure ISO image so tar may not recognize it. I have tested tar on some random ISO images and it could handle them all, so it's likely specific to that particular image. Note that hdiutil can create non-ISO CDR images so you would have to explicitly tell it to use the ISO format (note that the ISO format is somewhat restrictive, so many CDs use a different format either in addition to ISO or instead of it).