1949 - 1950 is interesting. In 1950 CCNY famously won both the NIT and the NCAA. In 1949, Kentucky played in both the NIT and the NCAA while San Francisco only played in the NIT. Kentucky won the NCAA and San Francisco won the NIT. Both claim a National Championship, and in my opinion both have a valid claim. At that time the NIT was highly regarded, with some saying it was more prestigious. Was the NCAA tournament in that period less competitive than it could be because some of the top talent went to the NIT? It's clear in the Modern Era that the NCAA champ is the National Champ.
There's a lot of claims made in the above, it's hard to know where to begin.
First of all, while San Francisco lists the 1949 NIT Championship as a "National Championship" on their website, which is technically correct, and something they certainly have the right to do, I don't believe anyone in 1949 (including USF) was claiming that winning the NIT was equivalent to winning THE National Championship. Do you have a reference from that time where USF claims to be National Champions?
At least from what I can tell from researching that time period, even during the era when the NIT was competitive with the NCAA field (which certainly includes 1949), it was generally acknowledged that the winner of the NCAA tournament was THE National Champion. The only hint of any debate was some discussion in relation to the Red Cross Games which were held during World War II and were a charity game held between the NCAA and NIT champions. (The NCAA, BTW, won all of those games.)
FWIW, I think that people today read about the NIT being more 'highly regarded' and 'more prestigious' as you say and assume that this goes directly to the stature of the winner of the tournament as compared to the NCAA. But again, I haven't really found that to be the case.
Rather when people refer to the NIT being more 'prestigious', it generally refers to the fact that the NIT typically paid a larger purse and at least until 1943 when the NCAA moved its championship to Madison Square Garden, the NIT was considered a bigger attraction to some teams because it was held in New York City (as opposed to the NCAA which was held in more mundane settings).
I think what has happened is that due to the recent eclipsing of the NCAA over the NIT over the past 50+ years, there's a movement to recognize that at one time the NIT was an extremely strong tournament in its own right. (which it certainly was). But in doing so, I think these same people who want to recognize the historical significance of the NIT go overboard and now try to say that the NIT tournament was better regarded (or that it's champion was considered more highly) than the NCAA tournament, which I don't think is justified by the evidence of the time.
As to your question in relation to 1949, certainly the fact that a number of top teams chose to participate in the NIT rather than the NCAA does make it less competitive than it would have been without the NIT. But again, from what I've seen, it was generally recognized that whoever won the NCAA tournament was considered THE National Champion (That's certainly true now because the NCAA has gone on to become the preeminent authority, but I assert that was also true at the time.), and something that the schools recognized at the time.
In particular below was the respective NCAA and NIT fields for 1949:
1949 - NCAA Field
#1 Kentucky *
#2 Oklahoma A&M
#4 Illinois
Yale
Villanova
Wyoming
Oregon State
Arkansas
1949 - NIT Field
#1 Kentucky
#3 St. Louis
#5 Western Kentucky
#7 Bradley
#8 San Francisco *
#10 Bowling Green
St. Johns
Manhattan
NYU
Loyola (IL)
CCNY
Utah
You really need to go back and look at what went into the various decisions of the different NCAA districts in terms of how they came about with their invitations, and you need to look at the motivations behind the schools and what went into their decision to accept an invite from the NCAA or NIT.
For example #5 Western Kentucky was in the same NCAA district as UK and thus would not have received an NCAA invite, same is probably true with #7 Bradley and #10 Bowling Green with respect to #4 Illinois.
Why for example Oregon State received an NCAA invite and what led San Francisco to the NIT (i.e. whether they received an NCAA invite and chose to turn it down or not), again one would need to look at the specific details.
The NIT in this case had a larger field (that would soon change) and was not bound by geography (the NIT typically had a strong Metro NYC presence, which is expected given that it was run by local NYC schools.)