Dr Jonathan Wright recommends treating sebaceous cysts with a combo of SSKI
/dmso. I would do some research on dmso before trying, it's very powerful stuff, I don't know that I would use it, I think not.
A sebaceous cyst actually has a "sac". From what I've read a visit to the dermatologist might be necessary to completley eradicate it(removal of the sac).
Iodine works on abnormal cellular growth, I don't know that the body recognizes a sebaceous cyst as abnormal.
Wright's reference on sebaceous cysts states that it dries them up, but doesn't say anything about recurrence. Unless the sac is removed I would guess that recurrence might be an issue.
Don't take my info as complete, though. Here's the sebaceous cyst support forum, looks like there are lots of treatments for them: