Alright, back on the computer.
You have a couple of options. You could clean off the top of the cast iron flange really well, and use some epoxy or silicone to seal the spacer flange to the old flange. It is important that the toilet bolts to the old cast iron flange, you don't want the toilet held down by the epoxy or silicone.
You could get an extra tall wax ring to make up the extra space.
You could get a PVC flange that is made to fit down inside of the cast iron pipe and then expands to seal against the walls of the pipe. You would still need to screw this flange down to the subfloor.
Or there is a thread on this forum that details replacing a cast iron flange. I will be back with a link shortly.
Here is the link:
http://www.plumbingforums.com/forum/f19/replacing-cast-iron-water-closet-flange-410/
I probably would not choose the first option.
The second option is OK, as long as you get a good squish out of the wax ring to ensure a good seal.
The third option is probably the one I would choose. I have never seen a problem with a proper installation, but in the linked thread, a plumber who has much more experience than I mentions having fixed several of these.
The fourth option is definitely a lot of work, but if done right it should result in a very solid, problem free installation.