The Fiesta Bowl actually selected the two teams, so the BCS isn't completely at fault here.
3. If a bowl loses a host team to the NCG, then such bowl shall select a replacement team from among the automatic-qualifying teams and the at-large teams before any other selections are made. If two bowls lose host teams to the NCG, each bowl will get a replacement pick before any other selections are made. In such case, the bowl losing the No. 1 team gets the first replacement pick, and the bowl losing the No. 2 team gets the second replacement pick. If the Rose Bowl loses both the Big Ten and Pac-10 champions to the NCG, it will receive two replacement picks.
I believe the Fiesta Bowl passed on Iowa.