As a native English speaker I would understand it the first way.

The sentence has an ambiguous meaning. To have the specific meanings you have inferred it would need qualifiers such as
'I saw him eat his whole dinner'.
For your second suggestion I think in colloquial English one would say 'I saw him finish his dinner'.
However as there is no qualifier to suggest it was only some of the dinner that was seen being eaten I would suggest the most likely meaning would have been the whole meal was seen being eaten.

Yay, Im definitely going to pass my literature exam!

"I saw him eat his dinner" can mean that you watched him eat his dinner from beginning to end. However, it can also mean that you saw him eating his dinner at any point during that event. This includes the end of the event — he finished his dinner — but it doesn't have to be that point in the event.

It is implied that you saw him eat all of his dinner. If you said "I saw him eating his dinner", that would imply that you had one look, or maybe more than one, and at that time, he was eating.

In general, it would mean you had dinner together.... That's how it would be used. I'm not sure why others are making longer explanations.

Could mean either . It basically means either they saw him while in the middle of eating it or observed that he finished it. It fairly vague a statement.

I don't know that either is particularly implied with a simple statement.

It's just a general statement that can mean all of the above, or you just saw him for a moment eating his dinner

I feel it means the former.

There is no focus on the end of the event here

I saw his dinner situation from the beginning to the end.