Antedating the July 1868 instance cited in Pete's answer by approximately twenty years is this instance from "England and the United States," in the Alexandria [Virginia] Gazette (January 4, 1848), an item attributed to "London Correspondence of the Nat. Int.":
England has to better the condition of her people at home; to attend to their physical, mental, and moral wants; to raise degraded Ireland from the mire into which she has been trodden by ignorance and poverty; to spread civilization and the arts and Christianity over her mighty empire in the East; and to act as the moderator and the mediator, the arbitrator, and, if needs be, as the benevolent dictator of conciliatory and liberal policy between the conflicting nations of rapidly-regenerating Europe. Here is employment enough for her.
It seems quite clear that the use of "benevolent dictator" in this instance has no edge of intended irony to it.
Later than the 1868 instance from The London Quarterly Review but earlier than the 1878 instance in Edith Simcox's Natural Law: An Essay in Ethics is this occurrence from "The Delights of Editorial Life," in the Goulburn [New South Wales] Herald and Chronicle (June 4, 1870), reprinted from the Bathurst Times and subsequently reprinted in nine other Australian newspaper by July 13, 1870:
It is nice to be an editor of a newspaper, and especially in a small country town. There you are a sort of benevolent dictator, universally loved and respected. Everybody has confidence in you, and people lift their hats to you whenever you appear in public. Your utterances are considered to be oracular, and whenever you pronounce judgment people read with abated breath and consider the decision to be final.
This description turns out (not surprisingly) to be an elaborate journalistic fantasy—as the writer subsequently observes: "Pretty, isn't it? But it isn't true. Let us have the real picture." Nevertheless, the writer does not seem to view the notion of a "benevolent dictator" as inherently absurd or oxymoronic.
'Benevolent dictates' as a precursor to 'benevolent dictator'
It seems worthwhile to note that the phrase "benevolent dictates" appears fairly frequently in the decades before the 1848 instance of "benevolent dictator" noted above. Here, in chronological order, are XX instances of the phrase from the 1700s.
From William Dodwell, "On Charity" in Practical Discourses on Moral Subjects, volume 2 (1749):
Our Faith will self-condemn us, and our Hope deceive us, if we do not regulate our Hearts and Lives by the benevolent Dictates of the Gospel. It was the Aim of both those Duties and Privileges to amend our Morals ; and if our Practice is bad, our best Speculations are vain and fruitless.
From Isaac Maddox, "A Sermon Preached before His Grace Charles Duke of Marlborough, ... on Thursday, March 5, 1752," fifth edition (1753):
Yield to the benevolent Dictates of human Nature ; pursue and gratify the rational Feelings and Sympathy of your own Mind ; hide not thyself from thine own Flesh, preserve the lives of your Brethren, afflicted, destitute, sick, and abandoned Brethren ; some of them perhaps at this very Instant, for want of a sufficient Fund to procure more extensive Relief, unavoidably delivered up to the two most woful an tormenting Companions, Poverty and Sickness ; excluded from this too scanty House, and miserably consigned over to Grief, Despair, and almost certain Death.
From an unidentified article in The Universal Magazine of Knowledge and Pleasure (1773[?]) [text not shown in snippet window]:
The young Marcel possessed a generous open heart, and, guided by its benevolent dictates, he valued money no farther than as it served to procure him and his friends the conveniencies of life.
From "Petition of Warren Hastings, Esquire, Governor-General, and of Philip Francis and Edward Wheler, Esquires, Counsellors for the Government of the Presidency of Fort William in Bengal, to the Honourable the Commons of Great-Britain, in Parliament assembled. Dated 1rth March, 1780" (1780):
Such acts [which were committed in the course of executing a writ of Capias] are accounted instances of the grossest violation and sacrilege, according to the principles and persuasions of the inhabitants of these provinces ; and have been never known to have been authorized with impunity, by the most despotick of their Mohammedan rules. It is to be lamented, that such a reproach should have fallen on the professors of the mild and benevolent dictates of the Christian dispensation ; not as the effects of a wanton abuse of authority ; but as the necessary and unavoidable operation of a foreign law, in the barbarous attempt to force it on a conquered people.
From Catharine Graham, "On the Vice of Lying—Religion," in Letters on Education; with Observations on Religious and Metaphysical Subjects (1790):
It might be imagined, that the greater lights of the Christian world would have enabled them to have steered clear of the errors of Judaism, and that in observance of the Sunday, they would have hit upon that mean, which at once complied with the benevolent dictates of the commandment, and with the policy of the Jews.
From E. Smith, The Contrast, Or the Mayoralty of Truborough, a Comedy (1790):
[HARRY] FRANKLY [Sir George Easeby's ward], aside. How happy wou'd the world, comparatively be, were all mankind govern'd by those benevolent dictates of humanity and virtue! how wou'd the blush of modest worth be spared! and the corroded breast of pining merit be relieved! if great men, (like Sir George Easeby) wou'd seek the wretched, e'er they sue to them; and (as he often does) repress the pangs of penury, before the formidable fiend has fasten'd her envenom'd sting.
From a submission by "The Contented Curate" to The By-Stander; Or, Universal Weekly Expositor (1790):
I represented to myself that I was going from a prison where swarmed the vilest and most attrocious set of human monsters, to an asylum instituted by the benevolent dictates of charity, for the wise purposes of enlightening young minds, and so forming their harts as to make them honest men, and good citizens.
From John Schiefer, An Explanation of the Practice of Law: Containing the Elements of Special Pleading (1793):
There can be no reason whatever, after that [payment of just compensation, as ordered by a jury], to wish your adversary to be imprisoned ; such a temper must be quite repugnant to the mild and benevolent dictates of Christianity, "to forgive your enemies, persecutors, and slanderers."
From "On the Love of Our Country," in Essays and Poems Read in the Theater at Oxford (1796[?]) [combined snippets]:
But the alliance and union of mankind must not be considered as mere acts of obedience to the benevolent dictates of nature ; they are moreover prompted by the vicissitudes of human affairs ; they are upheld by congeniality of dispositions and similitude of manners ; they are strengthened and perpetuated by all the advantages which promote, and all the refinements which adorn, the varied commerce of life.
From John Penn, A Timely Appeal to the Common Sense of the People of Great Britain in General (1798):
If to him whose prodigality is his striking quality, unusual generosity can be due, because opposition to the benevolent dictates of nature is wrong, surely to him who is distinguished by useful and honourable exertions, whatever can be reasonably expected ought to be readily offered.
From Mary Charlton, Phedora; or, the Forest of Minski, volume 1 (1798):
It was now above three years since the noble benefactors of the widow Rubenski had first extended to her their assistance, and the money left with the friendly minister for her use, was almost exhausted : but the excellency of his heart was neither drained nor impaired ; and as it had pleased heaven to lessen his family, which gave him rather more power to listen to its benevolent dictates, he secretly determined to impart this unpleasant circumstance only to his wife ; and with her concurrence, proposed to their ancient friend to become their inmate, together with Phedora, and partake their fortune, whatever it might be.
A Google Books search returns several dozen matches for "benevolent dictates" from the early decades of the nineteenth century as well. Cumulatively, these instances suggest that "benevolent dictates" may have had the status of a set phrase by the 1840s, with a meaning along the lines of "morally authoritative and wholesome advice or instruction."
Conclusion
Taking the many instances of "benevolent dictates" into account, I feel fairly confident that the phrase "benevolent dictator" arose initially in the sense of "speaker who offers authoritative judgments, advice, or commentaries that are consistent with sound moral principles"—not in the sense of "autocratic ruler whose treatment of his subjects happens to be generous, kind, or enlightened."
It is certainly true that dictator already had "absolute ruler" as its primary meaning by the turn of the nineteenth century. For example, Noah Webster, A Compendious Dictionary of the English Language (1806) provides this very brief definition of dictator:
Dictator, n. a chief ruler, an absolute magistrate
whereas the same dictionary has a very different entry for dictate as a noun:
Dictate, n. a rule, maxim, hint, suggestion, order
However, Webster's An American Dictionary of the English Language (1847), presents a much more varied entry for dictator:
DICTATOR, n. {L.} [1.] One who dictates ; one who prescribes rules and maxims for the direction of others. 2. One invested with absolute authority. In ancient Rome, a magistrate, created in times of exigence and distress, and invested with unlimited power. He remained in office six months.
It seems to me that the earliest instances of "benevolent dictator" tends much more in the direction of definition 1 of dictator in this dictionary than of definition 2.
