Why is "I was looking at how he was cooking dinner" incorrect? "Looking how he was cooking" doesn't make sense in English...
Can this sentence mean both "I was looking as he was cooking dinner" and "I was looking at how he was cooking dinner"? Those could mean two quite different things - I could and would take the first one to mean I was looking (at something else that was happening) as he was cooking dinner (so I didn't see what he added into the soup).
Well... theoretically it could mean that you were looking at somewhere else while he was cooking dinner, although I would specify what you were looking at then. The version where you were looking at the process of cooking seems a lot more probable.