Yes, indeed, “frappé” can mean “iced” in French !

I think it is not commonly used with “café” because it is not in French habits to drink iced coffee. Like Italians, French people mostly drink their coffee hot and strong (correct me if I’m wrong French people ^^). You’ll more likely see “citron frappé” or “vodka frappée”.

But concerning language, “café frappé” is alright and totally means “iced coffee” !

To complete my answer, and pursuing the commentary debate above, here is the definition of the French Academy for “frappé” :

(1) FRAPPÉ, -ÉE adj. XIXe siècle. Participe passé de frapper.

1. TEXTILE. Qui a subi une impression produisant un dessin, un relief. Du velours frappé.
2. MUS. Temps frappé (vieilli), temps
   fort, accentué. Par ext. Un vers bien frappé, au rythme marqué. Une
   maxime bien frappée, fortement exprimée, qui se grave dans la mémoire.
3. Qu’on a mis à refroidir dans de la glace pilée ; très frais. Une vodka bien frappée. Du café frappé. Par ext. Une carafe frappée.
4. Pop. Fou, extravagant. Il est un peu frappé.

The difference with “glacé” is that it’s not ice yet, it’s just very cold.

But I’m pretty sure most French native speakers can’t tell the difference between “frappé” et “glacé”, and neither do the marketing services who employ it in their menu ^^.

So “café glacé” and “café frappé” are quite synonymous.

As clearly stated by all comments and answers, the general sense of “frappé” as “cooled using ice”, for a drink, is commonly recognized and understood in France.

But comments and answers also state that, either:

• crushed (or blocks of) ice may be really blended to the drink.
• or the drink container (glass, carafe, …) has been put in an ice bucket.

Note: as stated by the @Eria’s answer, strictly speaking only the latter sense is confirmed by dictionaries; but by a usual language abuse the former is definitely also well admitted and understood, which causes ambiguity.

So this point keeps discussed and doesn’t get unanimity, and it’s where I want to bring my point of view. In my opinion it depends on three factors:

• kind of drink: as remarked by @Stephane Gimenez, wine may be frozen but never blended with ice (at least in France, where it’d be regarded as a sacrilege :), while as stated by @Random coffee may be either merely frozen or really contain crushed ice; more generally, almost every strong alcohol may be served with crushed (or blocks of) ice in the glass.
• culture: unlike French, Spanish people like (even red) wine to be strongly frozen (and this habit currently begins to spread in the southern France), so I’d not be surprised that they come soon to drink wine with ice inside.
• and finally, epoch and fashion (and here is what I wanted to especially point regarding the precise OP’s question on “café frappé”): I agree with comments saying that drinking cold coffee (whatever its form) is not currently in the French habits.
  But it was the fashion in France in the sixties, and at this time there was no ambiguity: a “café frappé” was nothing else than hot coffee blended with crushed ice and shaked like a cocktail, to be served finally fresh and foamy.
  Reading that Starbucks and Columbus currently propose something similar, I wonder if they respect this old recipe.