You need to size the mdiclient window to fill the frame window's client area:
You might also want to move the edit control that's parked over the toolbar as it prevents user access to the toolbar. (hEdit, WM_CREATE, main (frame) window).
/*stuff you have*/
/*replace value of 40 with toolbar height, use SetWindowPos if you prefer */
MoveWindow(g_hMDIClient, 0, 40, LOWORD(lParam), HIWORD (lParam)-40, 1);
/*resize the status bar when main (frame) window is resized*/
SendMessage(GetDlgItem(hwnd,ID_MAIN_STATUS), WM_SIZE, 0, 0);
Hope that helps.
edit: editing. ps please warn me in future if you compile with borland; #pragma resource threw me for a bit.
edit2: You might want to consider removing the WS_EX_CLIENTEDGE style from the mdiclient window, too, because it seems to cause a double border to appear in mdichild windows when they are maximised.