In book 5, I beleive it said that Dudley couldn't SEE the dememntors, but he could FEEL them. And we know that squibs can see them. When Harry was in his hearing with the wizengamot (sp?) they talk about how muggles can't see them.
I don't think Dudley is a squib, because don't they usually come from ALL magic families? Like how Neville is described as almost being a squib in book 2. So, I don't think I would describe someone with muggle parents as a squib, I would say that he's just a muggle.
haha, I really think I could talk about this stuff all day. i wish my friend's understood my obsession!