I finally figured out that the reason was because the UIImageView scales the image, and I was using the view coordinates of the part I was interested to try and get the subimage from the picture. This means that when I'm choosing a number from 0-320 in the view and grabbing those coordinates from a 1200x1600 image. This meant that I was always in the top left part of the picture.
The following code seems pretty close (it might still be a little off) but at least it grabs stuff in the right vicinity. I wanted to solve this problem even though I'm currently planning to actually abandon the 'grab' screen and put on separate dialog approach. Instead I'm going to create an overlay and place it on top of the current view, allowing precise dynamic changes to occur.
- (UIImage*) getView:(CGRect )area
// we are using aspect fit, so we will be using which ever is the larger of these two scale factors.
NSLog(@"scale factors are height=%f width=%f",widthScaleFactor,heightScaleFactor);
CGRect drawRect=CGRectMake(-area.origin.x/scaleFactor, -area.origin.y/scaleFactor,
CGRect destRect=CGRectMake(0, 0, area.size.width, area.size.height);